France Economy

France Economy

Subchapters:

  • Basic data
  • Public finances and the state budget
  • Banking system
  • Tax system

Basic data

The French economy is the second largest in the European Union after Germany and the seventh largest in the world. After a historic drop of 8.2% in 2020 due to the pandemic, the French economy saw a significant recovery in 2021 with an average GDP growth of 7.0%, the largest in 52 years and one of the largest in Europe. At the same time, government support measures in response to the coronavirus crisis led to a sharp increase in public debt. The average unemployment rate in 2021 was 7.8%. The average inflation rate for 2021 was 2.1%. France’s economic activity reached its level before the sanitary crisis in the 3rd quarter of last year. Check ebizdir for economical facts of France.

The French economy is exposed to the negative effects of the war in Ukraine relatively less than the economies of most EU countries. The impacts will be felt through higher inflation as a result of higher prices for energy on the international exchange and food. The government’s short-term priority is to deal with skyrocketing energy and food prices. In mid-March 2021, the government presented an “economic and social resilience plan” to mitigate the effects of the war in Ukraine and anti-Russian sanctions on the French economy. The main emphasis is on energy, due to the rising prices of oil, gas and electricity, and part of the plan is the assumption by the state of half of the additional costs of energy consumption at energy-intensive enterprises. In addition, the government will provide €400 million to agricultural businesses exposed to rising agricultural commodity prices.

In October 2021, the government announced a €30 billion investment plan to support reindustrialisation, with a particular emphasis on breakthrough technologies and environmental initiatives. The government is continuing to implement the €100 billion Recovery Plan, partly financed by European resources, which was introduced in response to the crisis caused by the pandemic in September 2020.

With regard to the Russian-Ukrainian conflict, the French central bank published a prediction on 13/03/2022, which presents two possible scenarios for the future development of the main macroeconomic indicators of France for the years 2022-2024. According to the “conventional” scenario, the GDP of France should increase by 3.4% and the inflation rate should reach 3.7% on an annual average. The second, “worsened” scenario works with the additional effect of a stronger increase in commodity prices combined with continued uncertainty, and forecasts slower GDP growth of 2.8% this year and a higher average annual inflation rate of 4.4%. For 2023, the “conventional” scenario of the French central bank predicts GDP growth of around 2.0%, and the “worsened” scenario predicts growth of 1.3%.

The French economy is highly developed and service-oriented, with strengths in the aerospace, luxury goods and pharmaceutical sectors. The share of individual sectors in the creation of added value is as follows:

  • 56.4% market service
  • 23.4% non-market services
  • 13.2% industry
  • 5.2% construction industry
  • 1.8% of agriculture

The most important production and export sectors include the production of automobiles, aircraft and other means of transport, electrical and electronic equipment, machinery, food, chemical products, pharmaceuticals, clothing and cosmetics. Automobiles, machinery, electrical and electronic equipment, food, chemical and pharmaceutical products, clothing, oil and petroleum products account for the leading share of imports.

Pointer 2019 2020 2021 2022 2023
GDP growth (%) 1.5 -8.3 6,7 3.4 2.1
GDP/population (USD/PPP) 52,527.70 48,557.30 53,360.00 57,630.00 60 150.0
Inflation (%) 1.3 0.5 2.1 3.7 1.5
Unemployment (%) 8.2 7.9 7,8 7.6 7.5
Export of goods (billion USD) 570 489.7 660.8 708 735.2
Import of goods (billion USD) 634.9 563.9 742.2 788.3 819.6
Trade Balance (Billion USD) -52.6 -67.7 -73 -71.3 -75
Industrial production (% change) 0.5 -10.3 6.5 3.2 1.6
Population (millions) 65.1 65.3 65.4 65.6 65.8
Competitiveness 31/63 32/63 29/64 ON ON
OECD export risk ON ON ON ON ON

Source: EIU, OECD, IMD, Banque de France

Public finance and state budget

Public finance 2021
State budget balance (% of GDP) -6.5
Public debt (% of GDP) 112.9
Current account balance (billion USD) -30.1
Taxes 2022
AFTER 25%
FO (middle band) 30%
VAT 20%

At the same time, government support measures in response to the coronavirus crisis led to a sharp increase in public debt. According to data published on March 29, 2022, the public budget deficit in 2021 reached EUR 160.9 billion, or 6.5% of GDP, and the debt ratio at the end of 2021 was 112.9% of GDP. The priority areas of budget spending for 2022 are justice, defense, security, education, science and research, digitization and environmental initiatives.

The current account balance has been negative for a long time and reached -30.1 billion USD in 2021.

Banking system

The banking system is developed and extensive. It is supervised by the licensing and control agency ACPR at the French central bank Banque de France. Licenses are issued for 20 different categories of services provided. Many hundreds of entities operate in the banking sector, of which about 1/4 are foreign. Their register can be found on the Regafi website of the above-mentioned agency. Interest rates on the interbank market have been falling slightly for a long time and at the beginning of 2022 they were around -0.5%. Their daily rates are listed by the Banque de France on its website in the Tauxinterbancaires chapter. The reference interest rate for private individuals was 3.13% in January 2022. The strongest banking groups are the following four, which are also among the 10 largest in Europe and the 30 most important in the world according to the “2020 List of Global Systemically Important Banks”. The indicative amount of assets is indicated in parentheses:

  • BNP Paribas (2,165 billion EUR) – the largest French banking group and at the same time one of the 10 largest in the world
  • Crédit agricole (EUR 2,011 billion) – the largest cooperative banking group
  • Société générale (EUR 1,356 billion) – the third largest French banking group, which also includes Komerční banka in the Czech Republic
  • BPCE (EUR 1,338 billion) – the second largest cooperative banking group.

The most important foreign bank in France is:

  • HSBC (€2,419 billion) – the largest European banking group based in London. It has over 400 branches in France.

Tax system

The tax system is complex and includes a number of different taxes and fees, which are listed on the French Tax Administration ‘s Impôts website . A more compact basic overview can be found, for example, on the website of the global consulting company Deloitte. The French tax system is relatively stable and no significant changes have yet been announced. When collecting taxes, the largest revenue comes from value added tax (VAT), personal income tax, corporate income tax and fuel consumption tax.

The tax burden is significantly above the EU average, but it is decreasing. The French government is gradually reducing the corporate tax rate, which was 26.5% in 2021 for companies registering a profit of up to €500,000 and 27.5% for companies with higher profits, with all companies subject to a rate of 25 in 2022 % (except for small businesses, for which the 15% rate was maintained).

Personal income tax has different rates for individual parts of annual income. The highest rate is 45% for annual incomes above EUR 160,336. The middle band €26,701 – €74,545 has a rate of 30%. Social insurance contributions are up to approximately 20% of the employee’s salary, and mandatory employer contributions depend on the size, nature and location of the company and can represent up to 50% of the gross salary in some cases. The basic (highest) VAT rate is 20%. Lower rates of 10, 5, or 0% are set, for example, on certain foods, medicines, printed materials, etc.

France Economy