Business

Overview

With a gross domestic product (GDP) in 2006 of US$2,124 billion, France is the sixth largest economy in the world in U.S. dollar terms, after the United States, Japan, Germany, the People’s Republic of China, and the United Kingdom (UK). France is a member of the European Union and, as part of the Eurozone, has ceded its monetary policy authority to the European Central Bank in Frankfurt. For the past two decades, the French economy has undergone substantial adjustments that diminished public ownership and economic planning and increased the sway of markets, especially financial markets, over French business. At its highwater mark in 1985, public ownership accounted for 10 percent of the economy and publicsector employment for 10 percent of employment. By 2000, public-sector employment had been cut in half, and the state’s direct control of the economy was reduced to core areas of publicservice provision, such as the post office. Currently, the French economy is performing strongly by several measures of economic activity.

In 2005 productivity measured as GDP per hour worked exceeded that of the United States and the other Group of Eight economies. Large French companies are expanding internationally and performing impressively in the global arena of economics and trade. And France has comparatively low inequality and the lowest poverty rate among the world’s large economies, at 7 percent, compared to 15 percent in the UK and 18 percent in the United States. At the same time, the country is struggling to reconcile its commitment to social equity with the demands of more open European and global markets. The most troubling aspect of the economy is persistently high unemployment⎯between 8 and 10 percent⎯and underemployment.

Companies faced with stepped-up international competition have tended to substitute capital for France’s comparatively costly labor. Job creation has failed to keep pace with the number of jobs lost to enterprise downsizing, and many jobs created in the services sector, the most dynamic sector, are inferior to previously available unskilled and semi-skilled jobs. The result in France, as elsewhere, is an economy of insiders and long-term outsiders, where some enjoy secure, wellpaid jobs with benefits, while others⎯mostly youth, especially youth of immigrant descent⎯are saddled with insecure, poorly paid work with reduced and diminishing benefits.

Gross Domestic Product (GDP)

France’s GDP is substantially smaller than that of the United States, Japan, Germany, and China, and slightly smaller than that of the United Kingdom (UK). In 2006 France’s GDP was about US$2,124 billion. Per capita GDP was US$33,894, about the average level in the Organisation for Economic Co-operation and Development (OECD) and about 30 percent lower than in the United States. Most of the difference between French and U.S. per capita GDP results from fewer hours worked in France per employed person. France also has an employment rate⎯share of the working-age population employed⎯somewhat below the OECD average. Overall, French workers contribute fewer hours to GDP than workers in most other OECD countries, and the higher hourly productivity of French workers only partially offsets the country’s lower level of labor utilization. With shorter workweeks, longer vacations, earlier retirement, later youth employment, and higher unemployment, French workers work 40 to 41 weeks a year, about six weeks fewer than U.S. workers. Debate and research continue on whether differences in hours worked mainly reflect a greater preference for leisure in France or institutional labor or financial market disincentives to higher employment and job creation.

The country’s average real GDP growth in recent years, like that of other continental economies, has been relatively lackluster. In 2006 French growth was 2.2 percent, up from 1.7 percent in 2005 but down from 2.3 percent in 2004, a year in which growth in the UK was 3.1 percent.

French growth in 2006 placed the country’s growth rate tenth among the 12 countries in the Eurozone. In 2007 a first-quarter acceleration in France’s growth prompted forecasters to raise their projections to a growth rate of 2.4 percent for the year. The origins of France’s GDP by sector in 2006 were as follows: agriculture, 2.5 percent; industry and mining, 22 percent; and services, 75 percent (including government services at about 20 percent of GDP).

Government Budget

France’s 2005 revenues totaled US$1,060 billion, while its expenditures totaled US$1,144 billion, including capital expenditures of US$23 billion. The French budget for 2005 lowered the country’s deficit to 2.9 percent of gross domestic product (GDP), bringing it for the first time in four years back under the Treaty on European Union (Maastricht Treaty) cap of 3 percent. In 2006 the deficit fell further to 2.5 percent of GDP. Public debt, the accumulation of past deficits, fell sharply from 66.2 percent in 2005 to 63.9 percent in 2006, somewhat below the U.S. level of about 65 percent of GDP (2005 to 2007), but still above the EU ceiling of 60.0 percent. Forecasts project further reductions in France’s debt for 2007 and 2008. France is also expected to sustain a deficit well below 3 percent beyond 2006⎯possibly 2.3 percent in 2007⎯because of the pick-up in the economy’s rate of GDP expansion. The pick-up is expected to generate tax receipts that offset health care cost increases (which a 2004 reform slowed but did not halt). In January 2007, because France’s deficit had remained below 3 percent since 2005, the EU dropped a pending disciplinary action against France for running deficits above the 3 percent ceiling.

Inflation

In 2006 the inflation rate was 1.8 percent, slightly down from 1.9 percent in 2005, a year that also saw a rise in consumer spending of 2.4 percent. Lower international oil prices since mid-2006 have allowed inflation to remain below the European Central Bank’s ceiling of 2 percent.

Agriculture, Forestry, and Fishing

Endowed with a third of all the agricultural land in the European Union (EU) and a moderate and varied climate, France is the world’s second largest agricultural producer (behind the United States) and the EU’s leading producer. French agricultural production makes up a fourth of the EU total and accounts for 2.5 percent of French gross domestic product (2006 estimate). France has roughly 1 million farms, which benefit substantially from subsidies, especially EU subsidies. Wheat, corn, meat, wine, sugar beets, and dairy products are France’s main agricultural products.

The EU receives 70 percent of France’s agricultural exports. French agricultural exports to the United States, mainly cheese, processed products, and wine, amount to about US$1.75 billion (2003) annually. The United States is the second-largest agricultural exporter to France, with exports⎯largely feeds, seafood, and snack foods⎯totaling US$425 million in 2003.

Several issues related to French agriculture figure in ongoing international debates. One issue is the magnitude of the subsidies that French agriculture receives under the EU’s Common Agricultural Policy. Some EU states, such as Germany, consider the subsidies disproportionate and an unfair burden on their own resources, while other states, notably the United States, see them as a violation of free trade. Other issues involve France’s insistence on the protection and security of its food supply. France’s food security concerns prompt it to prefer food selfsufficiency (even at the cost of needing subsidies) and to close its doors to products that could pose a threat, such as genetically engineered foods.

France also has forest resources that are among the largest in Europe. The forests⎯about twothirds deciduous⎯cover almost 17 million hectares and account for a third of the country’s land area. The average figure per capita is 0.3 hectares. Forest cover is growing by about 30,000 hectares, or 0.4 percent a year, through encroachment on former agricultural land. This expansion of forested land partly reflects the continuation of long-existing forest expansion and improvement policies. Since 1947, the government has subsidized the reforestation of 2.1 million hectares of forestland, for a growth of forestland by 35 percent. A quarter of the country’s forests are publicly owned, and 95 percent have free public access. State subsidies, amounting to some 90 million euros per year for the period 2000–9, have been earmarked for assisting communities and private owners to clear and regenerate their forests.

France’s large and growing forestry and wood products sector employs about a quarter of a million people (2000) in some 35,000 companies. The country, which harvests 55 million cubic meters of timber annually, is the largest European producer of hardwood sawnwood and is selfsufficient in hardwood raw materials. It is a net importer of softwood sawnwood and pulp for the paper industry. At least half of the pulp consumed in France is recycled material. Trade in forestry products in 2001 amounted to US$2.4 billion in imports and US$1.9 billion in exports.

With maritime openings on all the planet’s oceans, France has the world’s third largest exclusive economic zone, behind the United States and the United Kingdom. In spite of this privileged access to large fishing zones, the northeast Atlantic Ocean remains the fishing zone of most of the French fishing fleet. The production of the French fishing industry is currently growing. In 2006 the catch was as follows: shellfish, mollusks, and cephalopods, 285,291 metric tons, and saltwater fish, 472,914 metric tons. Aquaculture production reached 793,413 metric tons in 2006.

Mining and Minerals

France is not especially rich in natural mineral resources, although the coal deposits of northern France and the iron ore deposits in the east were important in the nation’s early industrialization. The country’s limited iron ore is of poor quality, and the nearly depleted coal reserves are unsuitable for steel production. In 2004 coal mining in France by its state-owned company was phased out altogether in favor of limited imports. Deposits of petroleum and natural gas, small and largely tapped, each yield only 5 percent of France’s consumption. France currently imports iron ore along with most other minerals important in industrial production. France remains a significant producer of uranium, a fuel used in nuclear reactors, and bauxite, from which aluminum is made.

Industry and Manufacturing

France has a large industrial base whose contribution to the country’s economic activity has not diminished in favor of services as dramatically as in other developed countries. French industry still provides 22 percent of jobs, compared to 11 percent in the United States. French industry is highly diversified. Apart from agri-food processing, the key industrial sectors are chemicals and pharmaceuticals, automobiles, metallurgy, telecommunications and electronics, and aircraft. France has been particularly successful in developing dynamic telecommunications, aerospace, and weapons sectors. Toulouse is now Europe’s aviation center.

Energy

France’s total energy consumption in 2001 was 10.5 quadrillion British thermal units (Btu’s), somewhat up compared to a decade previously. The country’s per capita energy consumption⎯178 million Btu’s in 2001⎯is slightly higher than in other West European countries but only about half the level of the United States (342 million Btu’s per capita energy consumption).

Petroleum and nuclear power account for roughly equal fuel shares of France’s total energy consumption⎯at 38 percent and 37 percent of consumption, respectively. With virtually no domestic oil production, France has relied heavily on the development of nuclear power, which now accounts for about 80 percent of the country’s electricity production. The non-petroleum and non-nuclear 25 percent of French energy consumption is divided among natural gas (14 percent), coal (4 percent), and renewables, including hydroelectric (7 percent) and combined geothermal, solar, and wind power (less than 1 percent). France is far behind other European Union (EU) countries, for example, Germany, in meeting the EU target of 20 percent renewable energy by 2010.

France is a net energy importer, with oil imports, chiefly from Saudi Arabia and Norway, accounting for most of the difference between the country’s energy consumption and production. Although France uses only half as much oil per capita as the United States, France is the world’s fifth-greatest net oil importer (behind the United States, Japan, Germany, and South Korea). France also imports more than 95 percent of its natural gas supply, mostly by pipeline from Norway, Russia, Algeria, and the Netherlands. France imports coal for its declining consumption from Australia, the United States, and South Africa.

The French economy was badly shaken by the oil shocks of the early 1970s, being overwhelmingly dependent on imported petroleum supplies. To reduce this dependence, France undertook both energy conservation measures and a crash program to develop its nuclear power industry. France now has more than one-sixth of the world’s total nuclear-based electricity generating capacity, which ranks second in the world (behind the United States). France generates significantly more electricity than it consumes each year and exports the surplus to neighboring countries, mainly to Switzerland, the United Kingdom, Italy, and Germany.

Thanks to both moderate per person energy usage and heavy investment in the nuclear alternative, France is the most energy independent Western country. It is also the smallest producer of carbon dioxide among the world’s seven most industrialized countries. France, however, faces a challenge in maintaining its current position, because its nuclear power has weakening public support for both environmental and economic reasons. Environmentalists are concerned about the possibility of accidents and about nuclear waste, which is currently stored on-site at reprocessing facilities. Nuclear power may also prove economically unattractive under new EU guidelines, which call for EU-wide competition in electricity markets. Nuclear power in France has hitherto been shielded from such competition, because for many years the stateowned Electricité de France (EdF) supplied electricity in France. The French government is now partially privatizing EdF.

Services

France’s dynamic services sector accounts for an increasingly large share of economic activity (75 percent of gross domestic product in 2006) and has been responsible for nearly all job creation in recent years. The services sector is dominated by financial services, insurance, and tourism.

The banking system, which accounts for 3 percent of GDP, is the third largest private-sector employer in France, with about 500,000 employees. The system has recently seen rapid change through numerous mergers and acquisitions. These gave rise in 2000 to PNB Paribas, which became the largest bank in France and the second largest in the Eurozone in terms of market capitalization. Crédit Agricole ranks second in profits among the top 25 West European banks.

Other French banks with global prominence include the recently expanded Société Générale and the recently privatized Crédit Lyonnais. The French insurance sector, which provides nearly 200,000 jobs, was the fifth largest in the world in 2003 and growing, particularly in the life, health, and property insurance classes The tourism sector, another major contributor to the French economy, generates 900,000 jobs and a trade surplus of well over US$10 billion yearly. France is the number-one tourist destination in the world, receiving more than 75 million tourists in 2005. The country has more than 17 million tourist beds, including more than 1 million in 40,000 hotels and 16 million in rural lodging, campsites, and youth hostels.

Labor

In 2005 about 28 million people were active in the labor force, for a labor market participation rate about 2 percent below the Organisation for Economic Co-operation and Development (OECD) average. Between 2000 and 2005, French employment growth averaged 3.1 percent (compared to 3.5 percent in the United States). The employment rate for male workers aged 25 to 54 is 87.6 percent (compared to 87.3 percent in the United States), but workers in France join the workforce later and retire earlier than workers in many other OECD countries. French workers also work relatively few hours yearly, averaging 37 hours per week (somewhat more than the statutory standard of 35 hours per week) with a statutory minimum of five weeks of paid vacation. At the same time, the worker productivity level measured by output per hour is among the world’s highest, exceeding the U.S. level.

Except for Scandinavia, France has the world’s highest female labor market participation rate, with women representing about 47 percent of the country’s workforce. This rate, dramatically up over recent decades, reflects in part the structural increase in services-sector employment, which is heavily female, and in part the relative family-friendliness of French workplaces. In the past 20 years, the structure of French employment has shifted toward the services sector now involving more than 70 percent of the workforce⎯away from manufacturing and construction, with about 22 percent, down from 38 percent in 1970. Workers in France receive help in balancing work and family through not only short worktime policies, but also generous subsidies for child care and preschool, sizable child benefits, and up to 26 weeks of paid parental leave, potentially followed by unpaid leave without job forfeiture. Preschool teachers have the equivalent of graduate training in early education and earn wages that are above the average for all employed women. In order to spend an equivalent amount to what France now invests in its family-leave policies and child-care provisions, the United States would have to spend between 1 percent and 1.5 percent of gross domestic product, or about US$115 billion to US$175 billion per year.

The labor code sets minimum standards for working conditions, e.g., the workweek (35 hours, with exceptions increasingly allowed), layoffs, overtime, and vacation. The code mandates the prorating of benefits between full-time and part-time work. A combination of regulation and collectively bargained agreements gives French workers robust employment protection. Although labor union membership in the private sector is lower than the low U.S. rate, French unions are capable of exerting pressure in political quarters by threatening strikes or resorting to the French tradition of mass mobilization. France’s employment protection legislation has not prevented the adjustment of private-sector French enterprises to their growing exposure to global market competition. French businesses have moved rapidly to streamline their workforces through downsizing and to raise worker productivity through up-skilling and increased capital intensity. The adjustment process, however, has resulted in inadequate job opportunities, particularly for youth. In the last 20 years, the country’s unemployment rate⎯8.3 percent in 2007⎯has consistently exceeded 8 percent, hovering around the 10 percent threshold for more than a third of that time. The unemployment and underemployment problem is often blamed on France’s robust labor regulation and high minimum wages, which are said to inhibit job creation and to price low-paid workers out of jobs.

No consensus exists, however, on the cause of the problem. Recent OECD studies dispute the over-regulation explanation, noting that France does not differ significantly in the stringency of its labor protection legislation from low unemployment countries such as Austria (2.4 percent), the Netherlands (3.1 percent), Norway (2.3 percent) and Sweden (2.9 percent). Nonetheless, in March 2005 the French government, responding to business groups, passed legislation to give businesses somewhat more flexibility to negotiate overtime pay, vacation times, and workweeks that exceed the 35-hour statutory limit.

Foreign Economic Relations

France was the main driving force behind the economic integration of Europe and remains a powerful force in the European Union (EU). As the member states of Europe’s institutions have grown in number, first to 15 and now to 25, the influence of France has necessarily diminished somewhat. Still, France’s contribution to the EU budget, to directing personnel in the EU, and to shaping the EU’s future is matched or exceeded only by Germany’s. Although the rejection of the EU constitution by the French electorate in 2005 produced some consternation about continuing progress in European integration, the EU’s constitutional basis and France’s central place in the EU remain secure.

Apart from the EU, France plays a major role in many other international economic bodies and regional blocs, including all of the central formal and informal organizations of the industrialized countries, e.g., the Organisation for Economic Co-operation and Development (OECD) and the Group of Eight (G8) and numerous regional trade blocs and customs unions in areas where France was formerly active as a colonial power. France, for instance, is a member or plays an advisory role in African economic blocs and organizations, such as the African Development Bank and the Central African States Development Bank. France is one of the world’s most important donors of development aid and loans, whether on a bilateral basis or through multinational agencies, such as the European Development Fund, the World Bank, and the International Monetary Fund.

Imports and Exports

The French economy is very open to foreign trade. Total trade imports plus exports of goods and services⎯amounts to about 50 percent of gross domestic product in France. France is the second-largest trading nation in Western Europe (after Germany).

France, the world’s fourth largest exporter of goods and the third largest exporter of services, sends 70 percent of its trade to European Union partners. Its main customers are Germany, Italy, the United Kingdom, Belgium, and Spain, along with the United States. In 2005 France’s topthree export destinations were Germany (14.7 percent), Spain (9.6 percent), and Italy (8.7 percent), with the United States receiving 7.2 percent. In 2005 France’s top-three import sources were Germany (18.9 percent), Belgium (10.7 percent), and Italy (8.2 percent), with the United States contributing 5.1 percent. France’s chief exports are machinery and transportation equipment, chemicals, iron and steel products, agricultural products, and textiles and clothing. The chief imports are crude oil, machinery and equipment, chemicals, and agricultural products.

Trade Balance

In 2004, after achieving a positive foreign trade balance for goods for most of the previous decade, France saw a trade deficit, as the euro’s strength damaged trade competitiveness and oil prices surged. Although exports grew in that year, imports grew faster.

By 2005, the trade deficit had grown several-fold. In 2005 the value of goods imports reached US$473.3 billion, while exports came to only US$443.4 billion, yielding a negative trade balance of US$29.9 billion or about 1.4 percent of gross domestic product (compared to the U.S trade deficit of 5.8 percent in the same year).

Balance of Payments

France’s current account, a broad measure that summarizes the flow of goods, services, income, and transfer payments into and out of the country, fell from surplus into deficit between 2003 and 2004, largely because of deterioration in the merchandise trade balance. Another factor negatively affecting France’s balance of payments for several years has been a lower surplus on services, which has not been fully offset by a larger surplus on investment income. In addition, as usual, France posted a large deficit on transfers, reflecting its net contribution to the European Union budget and its contribution to international aid. Taken together, in 2005 all of the international interactions yielded a current account deficit of US$38.8 billion, or 1.8 percent of gross domestic product. The deficit more than quadrupled that of 2004.

In 2006 the deficit was 1.9 percent of gross domestic product (compared to the 2006 U.S. deficit of 6.4 percent of GDP).

Foreign Investment

France is among the world’s top destinations for investment by foreigners, whether portfolio investment or foreign direct investment. The formal French investment regime is now among the least restrictive in the world, with no generalized screening of investment by non-French entities. Restrictions on foreign investment in France gradually disappeared in the 1990s. In the 1980s, most acquisitions of a French company by foreign interests were subject to prior approval by the French Ministry of Economy. Since then rules on investment have been liberalized, first for investments by European Union (EU) companies, then for all foreign investments. Only investments involving public security, health, or defense interests are screened. Negative decisions are subject to appeal if they violate the EU treaty article that guarantees free movement of capital.

Foreigners now hold about 35 percent of the capital of publicly traded French companies. Numerous opportunities for investors, including foreign investors, have been opened up by France’s ongoing privatization process, notwithstanding that privatization legislation gives the French government the option to maintain a “golden share” to “protect national interests.”

Foreign-controlled firms play a significant role in France’s economy. They account for 22 percent of the workforce, 27 percent of capital expenditures, 30 percent of exports, and 30 percent of production. Europe is by far the main source of direct investment in France, while the United States is the most active single investor. About 2,000 affiliates of U.S firms are established in France, with about 540,000 jobs resulting from U.S.-origin investments.

A decade of reforms has not entirely overcome the traditional preference for national control of businesses and aversion to foreign investment in the French economy, especially non-EU investment. Labor organizations, for example, sometimes oppose acquisition of French businesses by U.S. firms, on the grounds that U.S. firms focus on short-term profits at the expense of employment and employees. Nonetheless, the French government is committed to providing national treatment to all foreign companies. It provides, for example, equal access to research and development (R&D) subsidies. In 2003 France ranked fourth among Organisation for Economic Co-operation and Development countries for research, after Japan, Germany, and the United States, with R&D expenditure of about 2.5 percent of gross domestic product. More than half was financed by the public sector, which operates the major national research centers, as well as numerous centers specialized in particular fields.

Currency and Exchange Rate

As part of the Eurozone, France uses the euro as its unit of currency, having relinquished the franc as legal tender in 2002. The value of the euro has been rising in relation to the dollar. In late May 2007, the exchange rate was 0.74 euros=US$1.

Fiscal Year

France’s fiscal year is the calendar year.

Source: Library of Congress – Federal Research Division Country Profile