Trésor-Info - Publications de la direction générale du Trésor - Tresor-Economics

World Economic Outlook in Spring 2026: Global Economy Confronted with a New Energy Shock

2026-04-07T00:00:00+02:00

The conflict in the Middle East has weighed on the global economic outlook and has heightened uncertainty. Its impact, however, will depend on the duration and intensity, and will differ across countries according to their energy intensity, energy mix and reliance on hydrocarbon imports.

The global growth outlook has nonetheless been revised upward relative to the autumn forecasts, as the impact of US tariff measures has been smaller than previously anticipated. Global growth is expected to reach 3.2% in both 2026 and 2027, following 3.3% in 2025.

Among advanced economies, growth in the United States is expected to pick up slightly in 2026, supported by the past depreciation of the US dollar and the country’s position as a net exporter of oil and natural gas, before moderating in 2027. Growth in the euro area and the United Kingdom is set to slow, as these economies are more exposed to the energy shock, with growth remaining heterogeneous across countries, notably owing to their respective fiscal policy stances.

In major emerging market economies, growth is projected to moderate slightly in 2026 and 2027. The effects of the conflict in the Middle East are expected to differ markedly depending on whether economies are net importers of hydrocarbons (India, China, Türkiye) or net exporters (Brazil).

Global trade growth is set to slow sharply in 2026 (to 2.2%, after 4.3%), reflecting the full materialisation of the US tariff shock and the energy shock caused by the conflict in the Middle East. Global trade growth is then projected to recover to 2.8% in 2027, reaching its pre-pandemic average (2.8% from 2015 to 2019). In particular, trade in AI-related goods is expected to continue to support global trade growth.

These forecasts are highly uncertain, especially for 2027. The impact of the conflict in the Middle East will depend on its duration and intensity, as well as on the public policy responses adopted by other countries (only the measures announced to date have been taken into account). In addition, US trade policy remains a persistent source of uncertainty.

The Financial Situation of the Defence Technological and Industrial Base Since the Onset of the War in Ukraine

2026-03-20T00:00:00+01:00

Rising defence spending, increasing at a faster pace since 2022, could trigger an increase in business activity. The rapid development of Defence Technological and Industrial Base (DTIB) businesses and the related benefits are however hampered by lingering supply and hiring difficulties.

According to a study published in March 2025 carried out by France’s Economic Observatory for Defence and the French Treasury, the economic and financial situation of the DTIB was precarious prior to the Russian invasion of Ukraine. This paper supplements the study by analysing the situation up to 2024 and shows that since 2022 the sector’s economic and financial health has been steadily improving. However, long payment lead times and a high working capital requirement point to the need for significant cash flow.

Since 2021, intermediate-sized enterprises (ISEs) and small and medium-sized enterprises (SMEs) in the DTIB have seen a sharp increase in their value added, profit margins and investment rates, which are more robust than for comparable non-DTIB companies.

The equity of DTIB companies has risen, driven primarily by the increase in earnings. However, their equity levels are still proportionally lower than in the rest of the industrial sector, and the borrowing levels of DTIB companies continue to be more significant.

This trend may continue with rising defence spending in France and Europe and an expansion of financing opportunities. The ongoing consultation between the defence industry and the financial sector, set up by the Defence Procurement and Technology Agency (DGA) and the French Treasury in 2025, has facilitated bank financing and helped raise equity funding in the DTIB.

Electricity Interconnections and their Contribution to the Energy Transition

2026-03-05T00:00:00+01:00

Electricity interconnections between the French grid and those of neighbouring countries bolster security of supply and provide consumers with priority access to the most competitive and least carbon-intensive electricity.

During the energy price crises in 2022 and 2023, these interconnections enabled French consumers to avoid outages or even blackouts by offsetting the fall in production of French nuclear and hydropower plants.

The relevant interconnections also offer regional socio-economic benefits. However, they are uneven between countries, on the one hand, and between electricity producers and consumers, on the other. In order to safeguard incentives for stakeholders to build and use interconnections, it is necessary to have arrangements for redistribution between countries and, within countries, between economic players.

The expansion of internal domestic grids will play as important a role as interconnections in achieving European electricity integration targets. Investment in national grids helps optimise proper use of interconnections and prevents them from causing congestion in neighbouring power grids.

Interconnections enable several countries to pool their assets and thus ensure their electricity systems’ resilience: peaker power plants, batteries, demand-side flexibility mechanisms, etc. In a European energy system that is undergoing a sweeping transformation, interconnections provide reassurance against the uncertainties created by these changes.

This means that the expansion of interconnections and other flexibility assets is being considered in a coordinated manner at European level in order to rein in investment requirements and remunerate them at their fair social value.

The Economic Issues Surrounding Support for Renewable Electricity

2026-02-16T00:00:00+01:00

Renewable electricity, when used to supplement nuclear energy, contributes to achieving the goals of the energy transition. This requires the widespread electrification of uses in transport, construction and industry. Renewables also enable us to reduce our dependence on fossil fuels, which are mostly imported, and thus strengthen our energy sovereignty.

The competitiveness of renewable energy development projects depends on the sector (solar, onshore wind, offshore wind, etc.) and the ratio between their cost and the market price of electricity. In 2025, market prices in France were lower than in most neighbouring countries. While the cost of renewable electricity has fallen sharply in recent years, it has not yet reached the average level of current market prices in France. Hence, the development of these sectors still requires government support.

Support for renewable energy aims to improve the return on investment. Its cost increases when electricity market prices fall, and vice versa. The increase in the volume of renewable electricity receiving support will automatically lead to greater exposure of public finances to market price fluctuations. As a result, support for renewables has had to change, in particular by transferring more of the risks borne by government to producers.

Until 2035, the annual cost of supporting renewable electricity will continue to be dominated by the cost of contracts signed before the end of 2024 (see Chart). As a result of lower generation costs for renewable technologies, the unit support cost for new facilities will be lower than for existing ones. So, for solar and wind power, the average full generation cost for supported facilities should be approximately €80₂₀₂₄/MWh in 2035, compared with €120₂₀₂₄/MWh today, resulting in an automatic reduction in the cost of government support per MWh generated.

Which Competition Policy Should be Adopted to Support Growth in France and Europe?

2026-02-12T00:00:00+01:00

Competition on a market drives down prices, improves quality and diversifies the supply of goods and services for the benefit of households and businesses. In addition to these effects on each product or market, healthy competition is key for economic growth (e.g. through business creation, see Chart). A lack of competition in the upstream value chain can increase the cost of intermediate goods for downstream businesses. Moreover, competition drives selection of the most efficient businesses and encourages them to stand out by investing and innovating.

Nevertheless, too much competitive pressure can sometimes harm businesses. By reducing markups, it can limit their ability to finance investment and curb the incentive to innovate when the future return on an innovation is lower. In some sectors, such as tech and manufacturing, moderate concentration can generate economies of scale through lower production costs from increased production volumes, support R&D and increase competitiveness.

Competition policy is currently being upgraded and is widely seen as necessary by stakeholders. The review of the EU merger guidelines launched by the European Commission aims to give more weight to innovation, sustainability and resilience criteria in merger cost-benefit analysis. By better accounting for efficiency gains associated with consolidation, some mergers that increase competitiveness and innovation could be more easily approved.

Beyond Health Impacts: the Heavy Economic Toll of Air Pollution

2026-02-05T00:00:00+01:00

Air pollution is a major public health issue. Fine particulate matter is associated with more than 40,000 deaths each year in France. It also interacts with other pollutants to trigger or worsen many diseases affecting organs including the lungs, heart and brain. It is estimated to account for 20% of new asthma cases in children.

These health impacts carry a high socio-economic cost, related not just to direct healthcare expenditure (e.g. hospitalisation and medicine costs) but also to impaired quality of life and lost production due to sickness absence.

In addition to these effects on mortality and morbidity, recent research papers have shown that air pollution also affects cognitive and physical abilities, resulting in lower productivity. These impacts can be seen across a broad array of occupations not just involving physically demanding work, in agriculture and industry for example, but also involving a cognitive aspect, such as financial services, call centres, and even umpiring in sport.

In addition to these direct short-term impacts, air pollution may also be undermining future productivity by reducing academic achievement and hampering innovation.

The Swiss High-Price Island

2026-01-22T00:00:00+01:00

Switzerland has a reputation for being a particularly expensive country. The GDP price index is roughly 60% higher than the European Union (EU) average, creating what is known as a “high-price island”. This high cost of living affects consumption more than investment, and, within consumption, affects services more than goods.

The high-price island was not caused by recent inflation but rather structural factors dating back to the 1970s. It goes hand in hand with wages that are approximately the double of those in neighbouring countries. Above all, high price levels in Switzerland reveal a dichotomy in its economy.

While one section of the Swiss economy is heavily outward-facing, and its very high level of productivity has resulted in high wages, another section is focused on the domestic market, particularly the service sector, where there is little competition. To match the high wages in the competitive tradable sector, the less productive domestic sector has to raise its wages, resulting in a rise in the overall prices.

The Swiss model openly prioritises producers over consumers with an eye to promoting Switzerland’s economic and industrial position. The result is that certain sections of the economy are relatively closed off, with high levels of agricultural protectionism and a less demanding competition policy than the one underpinning the EU.

High income levels allow most of the Swiss population to benefit from very strong purchasing power. While Switzerland is certainly a high-price island, it is first and foremost an island of prosperity, driven by the success of its exports. Paradoxically, there is a lingering doubt as to whether this model is sustainable (i) without the continued support of targeted protection schemes and (ii) lower domestic competition.

What Do the Financial Savings of French Households Finance?

2026-01-08T00:00:00+01:00

Net assets of French households primarily comprise property but also include a diverse range of financial assets which are a reflection of households’ longstanding appetite for liquid, secure assets. Financial assets include low-risk investments (deposits, savings accounts, euro-denominated life insurance products) and higher-risk assets such as financial securities (shares and bonds) that are held either directly by households or indirectly through financial intermediaries (FIs), as well as equity interests in their businesses.

Investments made by households through intermediaries help fund the economy as banks, insurance companies and investment funds use these investments to issue loans and purchase shares and bonds. 60% of these products come from France and 80% from the euro area.

A look-through approach was applied to financial intermediaries to examine what is ultimately financed by household savings. For every €10 of household financial assets, €4 is used for equities in businesses – half of which for business assets – €3 to invest in bonds, of which €1 relating to general government bonds (mostly in France), and €2 to issue loans.

Other stakeholders (particularly businesses and non-residents) also make investments through financial intermediaries that help fund the economy and are not covered in this paper. This paper only covers the financial assets of households, which only represent a portion of the assets of financial intermediaries.

The Economic Impact of the Performance Levels of the French Education System

2025-12-02T00:00:00+01:00

The academic performance levels of students in France are declining over time and in comparison with other countries. National assessments show a slump in academic achievement in mathematics and French over the past 30 years. A survey by the Programme for International Student Assessment (PISA) confirms this decline, which is faster than in other countries, although performance levels in France remain close to the OECD average and, out of OECD countries, are among the most strongly correlated with social background and reveal significant gender gaps.

Reversing the trend in educational performance levels would be a source of long-term growth for the French economy. Indeed, a large proportion of the productivity gains in developed economies can be explained by the accumulation of human capital, mainly acquired during initial training. Reducing gender and social inequality would increase the pool of potential innovators and skilled workers.

Assessment of education policies is essential, to identify the most effective actions and optimise their socio-economic impact. In particular, the literature shows that increasing the teacher-student ratio has a significant impact on academic performance levels. Teacher training and in-service professional development, as well as the appropriate and judicious use of digital resources, which are still underutilised in France, can also have a positive effect on learning.

Additional resources have been allocated to the education system in recent years (an 11% increase in domestic education expenditure in constant euros per student in primary education between 2017 and 2023). Halving of class sizes has been gradually implemented since the start of the 2017 academic year for students in the first and second years of primary school and in the final year of nursery school in priority education networks, to target students from disadvantaged social backgrounds in the acquisition of core knowledge.

The Outcomes and Objectives of Apprenticeships in France

2025-11-25T00:00:00+01:00

In France, apprenticeships in secondary and higher education settings combine on-the-job training with formal learning at an apprentice training centre. At the end of the training period, apprentices obtain an occupational qualification, such as a diploma, degree or other occupational certification. Apprenticeships are meant to foster the employability of young graduates.

Since the 2018 reform of the system, apprenticeships have grown sharply in popularity among students pursuing their education. 879,000 new apprenticeship contracts were signed in 2024, compared to 306,000 in 2017, bringing the number of apprentices with an ongoing contract to one million at the end of 2024. This expansion was facilitated by the deregulation of the programmes offered by apprentice training centres. It was also bolstered by more flexible rules for contracts and the introduction of a government single subsidy scheme for employers of apprentices.

The sharp increase in apprenticeships has come with an almost tripled cost for the public purse. In 2023, the cost to public finances reached around €15bn, or €14,700 per apprentice. This level of government support is considerably higher than that of other European countries where apprenticeships are deeply rooted, such as Germany. Adjustments to apprenticeship support schemes in 2025 will help to curb their cost.

The rise in apprenticeships has occurred alongside major changes in the profiles of apprentices, who are now more likely to be students in higher education than in secondary school, and of employers, with a shift towards the service sector.

Apprenticeships are associated with an overall smoother transition from school to work for young people compared to academic-track students not doing an apprenticeship. For young people having obtained an occupational certification (certificat d’aptitude professionnelle – CAP) in 2021, 63% of apprentices were employed 18 months after their apprenticeship, compared to just 36% of academic-track students. This impact is less marked, however, as a person’s education level rises, and appears to be minimal at the master’s level.

The Role of Carbon Credits in Financing Global Climate Goals

2025-11-25T00:00:00+01:00

Carbon credits are financial instruments aimed at supporting greenhouse gas emission reduction or carbon removal projects, especially in developing countries. Businesses use them to offset some of the emissions generated by their operations (offsetting) or to demonstrate their environmental commitment (contribution), for example by funding afforestation projects.

Carbon credits, which help to raise private-sector funding for climate initiatives, are instruments that can be used alongside, but are distinct from, emission trading schemes such as the European Union Emissions Trading System (EU ETS).

In 2024, around $500m in credits were traded on carbon credit markets globally. These markets are experiencing a crisis due to supply-side quality issues as well as challenges to the credibility of the principle of offsetting emissions owing to several greenwashing scandals. Several public- and private-sector initiatives are nevertheless seeking to better regulate practices to ensure the market’s credibility and real climate benefits. The establishment of an international carbon credit trading scheme is foreseen by the Paris Agreement on climate change, with the aim of providing a firm foundation for the market and fostering climate cooperation between countries.

EU Member States have adopted a climate target for 2040 that will allow high-quality international carbon credits to be used to contribute up to 5% towards the target, thereby helping to achieve European climate goals cost-efficiently by raising EU funding for projects outside the bloc. In addition, the European Commission has proposed to integrate permanent carbon removal projects, located on European soil, into the EU Emissions Trading System (EU ETS).

Geopolitical Fragmentation of Trade

2025-11-06T00:00:00+01:00

At a time of heightened geopolitical tensions, economic exchanges between nations are increasingly governed by a bloc-based approach. We are witnessing a reorganisation of trade between groups of geopolitically aligned countries, i.e. a geopolitical fragmentation of trade.

According to our estimates covering a period preceding the second Trump administration, the fragmentation between blocs of military allies is more marked than between diplomatically aligned countries or countries maintaining close economic cooperation. This fragmentation began with the annexation of Crimea in 2014 and accelerated with Russia’s invasion of Ukraine in 2022.

Since 2010, the military allies of the United States have increased their imports from other US-allied countries by around 40%, while imports from Russia’s military allies have decreased by 80% compared with trade between or with countries not belonging to either of these blocs (see Chart opposite).

Fragmentation can stem from strategies that address legitimate concerns, such as reducing unwanted dependencies. However, trade fragmentation would be less economically efficient than the free allocation of resources.

Similarly, reduced trade diversification could undermine the resilience of our economies. Lastly, fragmentation could hamper our ability to tackle global challenges such as the green transition and development.

Understanding Pathways Following Exhaustion of Unemployment Benefits

2025-10-30T00:00:00+01:00

On average from mid-2021 to mid-2024, approximately 57,000 people per month exhausted their unemployment benefits, accounting for 23% of unemployment benefit outflows.

This study focuses on job seekers who reached the end of their entitlement to unemployment benefits in the second half of 2022 and analyses their pathways over the following year based on detailed administrative data (Midas data) correlating waged employment, income support and registration with the national employment agency (France Travail).

The return to long-term employment is often gradual. 31% of former unemployment benefit recipients who exhausted their entitlement were in waged employment three months after exhausting their benefits. A full 58% of these individuals had worked again at least once as an employee after a year. Many individuals experience multiple employment contracts before finding long-term employment. A majority remain registered with France Travail while employed, reflecting active albeit fragmented return-to-work pathways. Minimum income benefits act as a safety net during these transitional periods.

18% of exhaustees receive the Revenu de Solidarité Active (RSA) three months later and 11% receive the Allocation Spécifique de Solidarité (ASS).

Five typical pathways of equal weight are found over the year following unemployment benefits exhaustion (see chart).

The Social and Solidarity Economy: a Solution to Democratic, Social and Environmental Challenges?

2025-10-23T00:00:00+02:00

In 2019, the social and solidarity economy (SSE) employed almost 2.6 million wage earners (13.6% of private sector paid employment) in nearly 150,000 legal employment units and worked with 22 million volunteers. INSEE, France’s national institute of statistics and economic studies, estimates that the sector generated approximately 5% of national value added in 2012. Two-thirds of SSE staff are concentrated in three sectors (social action, education and finance-insurance).

Five categories of economic players (associations, cooperatives, mutual societies, foundations and social enterprises) share three principles: the primacy of social utility, democratic governance and a non-profit nature. Act 2014-856 of 31 July 2014 raised the sector’s profile, facilitated statistical monitoring and consolidated the sector’s representative structures.

SSE entities suffer from financial vulnerabilities. They have a good risk profile and a low three-year default rate. Nevertheless, their median margins are no more than 14.6% (compared with 24.6% in the ‘conventional’ sector) and their equity remains low, which increases their structural exposure to public budget constraints.

SSE funding obstacles are caused by a lack of understanding of its models, significant information asymmetries and the fragmentation of fledgling impact finance. Solutions are emerging: €18 billion in solidarity savings fund deposits (+27% per year), €9-billion channelled into the SSE from regulated tax-free savings accounts (Livret A and LDDS), government-backed guarantees and impact contracts.

The SSE represents as much as 25% of employment in certain rural départements (Lozère and Deux-Sèvres) and provides key services such as home care, integration and culture.

The SSE plays a key role in environmental and democratic challenges. It is a circular economy pioneer, with two-thirds of reuse sector jobs, and helps spread new governance practices.

Examining the Composition of VAT Revenues in France

2025-09-25T00:00:00+02:00

Value-added tax (VAT) was introduced for the first time in 1954 by France and accounted for 17% of aggregate taxes and social security contributions in 2022. About half of VAT revenues accrues to the central government, while the other half is allocated to local authorities and to the social security system.

The costing model for theoretical VAT is a tool that combines tax and national accounts data to examine the composition of VAT revenues. Its purpose is to reconstitute consumption bases subject to VAT, i.e. to break down expenditure generating VAT revenues by type of product, by rate, by use and by type of consumer. The model makes it possible, for example, to determine how much of a specific product households consume (such as beverages) and to find out the breakdown between non-alcoholic beverages, which are subject to the reduced rate of VAT (5.5%), and alcoholic beverages, which are subject to the standard rate (20%).

The model can estimate the fiscal impact of VAT reform by product and the cost of existing tax expenditures, excluding knock-on effects on consumer behaviour. For instance, the net revenue gain from a 1-percentage-point change in VAT rates is estimated to be €11.4bn in 2025.

VAT is a revenue raising instrument with a limited redistributive impact. The VAT burden weighs most heavily on high-income households, although it represents a slightly larger share of the income of low-earning households. Certain reduced rates affect high-income households more positively.

World Economic Outlook in Autumn 2025: Global Economy Hampered by an Adverse Trade Environment

2025-09-11T00:00:00+02:00

US trade measures have driven the global outlook downwards compared to spring forecasts: global GDP growth is expected to stand at 3.0% in 2025 and 2.9% in 2026, down from 3.3% in 2024.

Among advanced economies, growth is set to considerably slow in 2025 and 2026 in the United States, as consumption is adversely impacted by tariff hikes and budgetary cuts. Euro area growth should be driven by a pick-up in consumption following a decline in inflation and by sustained investment as a result of falling interest rates. However, growth is expected to be hindered by trade tensions and the appreciation of the euro. Germany’s growth is set to be sluggish in 2025, but should recover in 2026 with the help of fiscal stimulus, while weak growth is expected in Italy in spite of support in the form of the National Recovery and Resilience Plan (RRP). Spain’s growth is projected to remain far more robust, driven by population growth, dynamic investment and tourism. An expansionary fiscal policy is expected to support the United Kingdom’s growth.

Most major emerging economies are expected to experience a slowdown in growth in 2025 and 2026: in particular, China’s growth is set to falter as a result of trade measures and persistent structural imbalances.

Global trade should continue to be hampered by US trade measures, with growth of just 2.1% in 2025 and 2.3% in 2026, significantly below its historical average (2.8% from 2015 to 2019). Recovery in 2025, expected as a result of forecasts of tariff hikes for the first half of the year and demand from advanced economies, should be weaker than projected as it has been hindered by a decline in imports from China and India. In 2026, a pick-up in emerging-economy imports is not expected to offset declining US imports.

The risks surrounding this scenario are mostly skewed to the downside as the Trump administration continues to threaten to impose new tariffs amid persistent geopolitical tensions.

The Attention Economy in the Digital Age

2025-09-04T00:00:00+02:00

The attention economy refers to business models that seek to monetise consumer attention. Most of these business models rely on advertising, allowing them to provide certain services appreciated by consumers free of charge or at a special rate. Consumers then indirectly “pay” for these services by providing an audience for advertisers.

While these business models have been used for a number of years by legacy media (e.g. print, television), certain digital platforms such as social media are taking them even further, due to technical and economic characteristics specific to their industry.

Digital firms in the attention economy generate economic activity via their revenue, sales from online advertisements and productivity gains from the development of new tools and features.

Nevertheless, the business models of the attention economy have significant negative externalities for users and society (e.g. reduced productivity, impact on cognitive abilities and mental health). According to a review of the existing literature, these negative externalities could reduce GDP in the long term by 2 to 3 percentage points for the quantifiable portion of these impacts. This order of magnitude – which should be interpreted with caution owing to its underlying assumptions – depends above all on a decline in children’s cognitive abilities, which is expected to lower their future productivity when they enter the labour market as adults (see Chart on cover page).

Regulatory initiatives being taken at national and European Union level involve (i) regulating platform features, (ii) protecting vulnerable groups such as children, and (iii) fostering competition to aid the development of healthier alternatives.

Review of the French Government’s Economic Forecasts for 2024

2025-08-28T00:00:00+02:00

When drawing up the macroeconomic scenario for the 2024 Budget Bill presented in September 2023, we expected that 2024 would see a gradual cushioning of the shocks that had hit the economy. As such, expectations focused on an upswing in growth bolstered by a ramp-up in household consumption. The main contingency identified in the forecast concerned the pace and extent to which monetary tightening would affect both real GDP and the financial sphere.

GDP growth in 2024 (up 1.2% according to INSEE’s annual accounts published in May 2025) fell short of the 2024 Budget Bill forecast of 1.4% and broke down differently than expected due to a fresh wave of shocks that were largely unforeseeable in autumn 2023.

The deterioration in the international environment, particularly the second consecutive year of recession in Germany, curbed French exports. Meanwhile, uncertainties at both international (tension in the Middle East in particular) and national level (dissolution of the French National Assembly) put a drag on investment. The catch-up following productivity losses since the COVID-19 pandemic has been faster than anticipated, leading to a more pronounced slowdown in employment. Lastly, the faster-than-anticipated drop in inflation failed to boost consumption due to the less favourable breakdown of purchasing power gains.

Nevertheless, some of these negative shocks were absorbed by a fall in imports, partly replaced by inventory rundowns, and by rising public demand, mainly concerning local authorities and healthcare spending. Despite the adverse impact on the government deficit, increased public demand naturally buoyed up economic activity.

Air Transport Pricing and Taxation

2025-07-10T00:00:00+02:00

Air transport makes a major contribution to France’s economic activity providing 89,000 jobs and forging strong ties with the tourism sector. It allows for interconnections at regional, national and international levels due to its network effect. However, the airline industry also causes negative externalities, especially climate-related ones.

According to economic theory, optimum transport pricing involves having users pay for the social cost of their travel, i.e. the additional monetary and non-monetary costs that a journey generates for society as a whole. This covers both the costs of the service provided to the user (fuel and aircraft maintenance in the case of air transport) and those imposed on non-users, meaning the negative externalities associated with a journey, such as noise pollution and greenhouse gases. Whilst the former are theoretically included in the price of the airline ticket, the latter are not taken into account in the absence of government intervention.

The airline industry has a multi-tiered pricing system that is globally correlated with these negative externalities. Internationally, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) imposes emission offsetting requirements over and above a baseline. At European level, the carbon market covers emissions from intra-EU flights. In France, several taxes are levied on the sector, in particular the solidarity rate which was increased by the 2025 Initial Budget Act.

In 2025, French air transport pricing covers an average of around 34% of all its negative externalities. This means that when a flight causes disturbances costing society €1, the user only pays 34 cents.

In the medium term, with regard to carbon emissions, the most economically-effective solution is still to roll out pricing instruments at international level. These instruments would provide coverage of the carbon externalities for the entire industry whilst ensuring fair conditions for competition, thus mitigating carbon leakage.

Coordinating Fragmented Creditors to Restructure Sovereign Debt: the Case of Sri Lanka

2025-06-26T00:00:00+02:00

On 12 April 2022, with an already precarious debt situation exacerbated by the COVID-19 pandemic, Sri Lanka announced that it was defaulting on its external debt. The deterioration in the country’s economic situation led Sri Lanka to negotiate an agreement with the IMF for a $2.9-billion Extended Fund Facility for the 2023-2027 period to support a reform programme.

In the wake of the COVID-19 pandemic, the G20 and the Paris Club adopted a Common Framework to coordinate debt restructuring for low-income countries, but Sri Lanka – a middle-income country when it defaulted – did not qualify. Nevertheless, the Common Framework’s coordination channels served to set up an ad-hoc Official Creditor Committee (OCC) co-chaired by France, India and Japan and including Paris Club creditors, India and Hungary, which accounted for 16% of the external debt stock. At the same time, a “flexible” coordination arrangement was put in place with China, which held 11% of Sri Lanka’s external debt stock.

The bondholders, accounting for 32% of the foreign creditors, restructured their securities by introducing an innovative financial instrument indexed to Sri Lanka’s GDP growth called macro-linked bonds. This contingent debt treatment complicated the official creditors’ assessment of effective terms of treatment from the private creditors at least equal to those of the official creditors (“comparability of treatment”).

Sri Lanka’s experience demonstrates the possibility of coordination with China outside of the Common Framework in order to proceed in parallel with debt treatment and prevent delays with the IMF-supported programme. Timely and regular discussions with bondholders also served to rapidly reach an agreement on debt treatments compliant with both IMF programme targets and the principle of comparability of treatment.

Wage Trajectories of French Minimum Wage Earners

2025-06-12T00:00:00+02:00

Study of individual wage trajectories provides a more detailed picture of wage mobility and stagnation over a long period than aggregate wage indicators.

Analysis of wage trajectories in France between 2013 and 2019 shows that minimum wage earners, hereby defined as employees earning less than 1.1 times the French statutory minimum wage (Smic), were more likely to see their salary increase than other employees. These employees also received higher average pay rises. In particular, this is due to the fact that more young people, at the start of their careers, are minimum wage earners and then experience a rapid pay rise.

However, wage trajectories of minimum wage earners are very diverse. Only a minority of them remain permanently close to the minimum wage. Certain categories of individuals are however more likely to remain minimum wage earners over time: women, clerical workers and service sector employees.

Lastly, an analysis of wage trajectories during the COVID-19 pandemic between 2019 and 2021 suggests that experiencing a period of short-time work did not significantly affect the likelihood of wage progression during this period.

IMF Governance and the 16th General Review of Quotas

2025-05-22T00:00:00+02:00

The role of the International Monetary Fund (IMF), which was originally established in 1944 to stabilise currency exchange rates and organise international monetary and financial cooperation, has gradually been expanded. It currently plays an essential role in the international financial system.

The IMF’s governance is based on a system of quotas, which are allocated to each member country. Each country’s quota determines the financial contribution it is required to make to the IMF, its voting rights, and the number of special drawing rights it receives in general allocations. Although most decisions are made by consensus, this governance structure is similar to that of a company limited by shares, with quotas representing both each country’s contribution to the IMF’s permanent resources and its relative voting rights.

Each country’s quota is based on economic variables. The most recent change to the distribution of quotas between countries was made in 2010. Despite developments in the global economy and a number of quota reviews, the IMF’s ownership structure has remained unchanged since then. The 16th review, concluded in December 2023, provides for a uniform 50% increase in each country’s quota, without changing the distribution between countries.

Against this backdrop, questions surrounding a potential reform of the Fund’s governance continue to be relevant. These questions focus on how to realign the level and distribution of quotas with the size of the global economy and the relative weight of member countries. Following the commitment made by its members in October 2023, the IMF’s Executive Board is due to put forward its proposals by June 2025, as part of the 17th General Review of Quotas, including by considering how the theoretical quota formula could be changed.

The Distribution of Income Generated in France Between Labour and Capital

2025-05-06T00:00:00+02:00

Generally speaking, the income generated in a country is divided between labour (labour costs, meaning all expenditure connected with using the labour factor), capital (gross operating surplus) and, residually, general government (taxes on production and operating subsidies).

For the past three decades in France the proportion of labour-related expenditure in the value added of non-financial corporations has remained fairly stable at around two thirds. Between 1990 and 2023, changes to this share can be broken down into three separate phases (see Chart). It fell between 1990 and 2007 as businesses offset rising taxes on production by limiting wages and recruitment. It then increased between 2007 and 2017 as the shock to business activity caused by the financial crisis had a greater impact on companies’ gross operating surplus than on the payroll which is less flexible. From 2017 to 2023, it declined slightly essentially due to the time-lag in wages aligning with the 2022 inflationary shock, an adjustment which continued into 2024. In addition, the cut in taxes on production over the period allowed for an increase in gross operating surpluses.

The slight rise in the proportion of labour-related expenditure in value added between 1990 and 2023 mirrors that of labour-related levies whereas the share relating to net wages (before income tax) remained stable.

Within the capital share, net dividends increased between 1990 and 2023 whilst net interest paid out fell. The corporate savings rate and businesses’ ability to self-finance their investments rose slightly.

The Consequences of Regulating Mortgage Lending Conditions

2025-04-08T00:00:00+02:00

An increase in household mortgage debt was the catalyst for the decision made by the macroprudential authority – the High Council for Financial Stability (HCSF) – to regulate mortgage lending conditions for households in France. In 2019, the HCSF published a recommendation for credit institutions to limit the debt service to income (DSTI) ratio – the share of income allocated to monthly mortgage repayments – and the maturity of the mortgages approved. This recommendation became legally binding in 2022.

The Primmo model was used to assess this regulation, taking into account the varying impact that government policies may have depending on actual observed interest rates. This assessment showed that the HCSF’s measure had enabled the average DSTI ratio to be reduced while increasing the average mortgage maturity. However, the effect on property prices is limited amid rising interest rates. The findings are in line with the studies presented in the HCSF’s 2024 Annual Report.

When using the variation in the average income of buyers in the model as a proxy of the exclusion of households, the analysis reveals that lower-income households are “excluded” from the credit market due to high interest rates, but that this is not compounded by the HCSF measure.

If the HCSF had not applied the measure, the average DSTI ratio would have risen while the average mortgage maturity would have decreased. However, this would not have had a major effect on transactions and property prices within one year, as short-term market momentum is primarily influenced by the interest rate environment.

The model can also be used to examine the effect of exogenous shocks – relating to interest rates, as well as construction and rent – on the property market’s momentum and the profile of borrowers.

World Economic Outlook in Spring 2025 Growth Amid Global Turbulence

2025-03-20T00:00:00+01:00

The international scenario, set on 21 February, assumes that the United States will double its existing tariffs on imports from the European Union, China, Canada and Mexico from the 2nd quarter of 2025 onwards. Equivalent countermeasures by these trading partners are also assumed to take effect at the same time. The ensuing turbulence is expected to reduce global GDP growth by 0.1 percentage points (pp) in 2025 and by 0.2 pp in 2026. Similarly, world trade is projected to shrink by 0.2 pp in 2025 and by 0.7 pp the following year.

In line with these assumptions, and provided uncertainties around US economic and trade policies resolve quickly, the global economy should still perform fairly robustly, though somewhat weaker than predicted in September 2024. Global GDP is projected to grow at a steady 3.2% in both 2025 and 2026, roughly in line with 2024, and only marginally below the average pace recorded during the 2010s.

Among advanced economies, economic prospects diverge. Growth is expected to remain solid in the United States – if financial stability persists and investment is not excessively dampened by trade policy uncertainties – and in Spain. Germany, however, faces sluggish prospects, weighed down by delays in the emergence of the recently unveiled investment plans’ effects (announced after the forecast cut-off date), while Italy and the United Kingdom are likely to fall in the middle. These differences reflect differing exposure to tariff hikes and varying growth momentum for 2025, established at the end of 2024. By 2026, these disparities are expected to narrow somewhat.

In the major emerging economies, namely China, India, Brazil and Turkey, economic activity is expected to slow down in 2025. China’s performance is expected to be particularly hampered by enduring structural imbalances. For 2026, the trajectory for emerging economies is expected to be closely tied to the course of monetary policy.

Paradoxically, despite tightening trade policies, global trade volumes are set to pick up speed in 2025 and 2026 after two years of subdued momentum. However, this recovery should be partial and notably weaker than anticipated in the previous September forecast (see Chart). Global trade is expected to continue to be driven by emerging economies, and as a result France should experience comparatively modest demand growth.
These forecasts come with substantial risks – primarily emanating from uncertain global trade policy developments: recent tariff announcements by the US administration amplify downside risk significantly with regard to the assumptions adopted.

How Strong Were the Finances of DTIB Companies Before the War in Ukraine?

2025-03-19T00:00:00+01:00

At a time of increasing international tension, the economic and financial position of companies “that help to design and produce equipment for armed forces” (i.e. the “defence technological and industrial base” or DTIB) is a major concern, particularly as regards small- and medium-sized enterprises.

To analyse the economic and financial position of these companies, France’s Economic Observatory for Defence and the Directorate General of the Treasury carried out a study covering the period from 2016 to 2021, looking at a sample of 2,072 companies (intermediate-sized, medium-sized and small enterprises) operating in sectors most closely associated with the DTIB.

During that period, DTIB companies (excluding large corporations and micro-enterprises) had a weaker financial and economic position than companies in the rest of the economy: they had thinner margins, were less able to create value, had higher debt levels and were potentially undercapitalised.

DTIB companies’ ability to repay debts was lower than that of comparable companies in the rest of the economy, but they had higher debt levels, suggesting that they had sufficient access to bank credit.

They made greater use of external funding in their equity capital formation, partly because they were less able to generate profits capable of strengthening their equity base.

However, since 2021, the increase in European defence budgets in response to the war in Ukraine, along with several public-sector initiatives – such as the creation of the European Defence Fund and the loosening of the European Investment Bank’s funding rules – have improved their growth outlook and therefore their financial health, although increased demand is also leading to increased funding needs.

The Economic Issues Surrounding Redistribution to Families

2025-02-27T00:00:00+01:00

Since its introduction in the 1930s, family policy has been resolutely directed towards childbirth goals by horizontal redistribution from childless households to those with children. The first major change took place in the 1970s with the start of vertical redistribution from wealthy families to low-income ones. Family policy expenditure now encompasses a large number of objectives, including support for early childhood and gender equality.

Family policy has adjusted itself to socio-demographic changes in recent decades, in particular the increase in women in the workforce and single-parent families.

Today, family policy has three main goals: contributing to offsetting family expenses, helping vulnerable families and ensuring a work-life balance. To achieve its targets, the policy comprises tax schemes (essentially income splitting, the quotient familial), universal or means-tested monetary allowances, increased welfare benefits depending on the age or number of children, and the provision of public childcare services.

The French welfare and tax system now focuses mainly on low-income families, single-parent families and large families for which the poverty rate is higher than for other families. Besides income levels and the number of children, the additional monetary benefits paid for having children depend on their age and birth order. Nevertheless, changes to welfare and tax transfers based on these criteria are not always commensurate with the increase in costs for families. In addition, the "layering" of schemes creates changes in the amount of means-tested benefits paid per child that are difficult to understand (see Chart).

Childcare options conducive to a work-life balance are thought to have a stronger impact on fertility rates than the monetary benefits under family policy.

Lessons from Past Industrial Policies

2025-02-13T00:00:00+01:00

Industrial policies aimed at the creation and development of specific sectors have made a comeback against a backdrop of a mounting number of crises, trade tensions, an accelerating innovation race and the imperative of combating climate change (see Chart on cover page). A study of policies in eight advanced and catching-up countries from 1945 to 2000 provides useful insight into the conditions determining their success or failure.

Industrial policy had similar aims in all countries studied: (i) growth and competitiveness; (ii) support for major transitions (energy, space, etc.); (iii) strategic autonomy and sovereignty; and (iv) support for declining sectors.

Although different models of industrial policy exist, most countries have intervened in a targeted manner in specific sectors. The catching-up countries (Japan followed by South Korea and China), France and the United Kingdom – up to the 1980s – directly intervened in the development of industrial production capacities. In the United States, sector measures were decentralised and limited to R&D support and government procurement in military and high value-added sectors.

The advanced countries’ sector-specific measures focused on emerging sectors with high stakes in defence- and sovereignty (aviation, energy and space in the post-war period followed, as in the catching-up countries, by electronics and IT). The catching-up countries initially focused on mature, but high-growth-potential mid-tech sectors (automobiles, chemicals and shipbuilding) and then on high-tech sectors (primarily electronics and IT).

International sector-specific industrial policy experiences provide useful insight for shaping today’s policies. For example, the success of both export aid conditional on performance in South Korea and the precise specification of ambitious technological goals in US development contracts suggests that setting high commercial and technological performance targets is a factor for success.

Internal Migration: A Cornerstone of China’s Economic Model

2025-01-28T00:00:00+01:00

Since 1978, hundreds of millions of people in China have migrated from the countryside to cities, mainly in the east, fuelling the country’s remarkable industrial transition from an economy previously dominated by agriculture (see Chart). In 2023, 66% of the population lived in urban areas.

Rural-urban migration has been driven by a gradual easing of the hukou, a household registration system for Chinese citizens based on their place of origin and their status (agricultural or non-agricultural, or rural or urban). The hukou is often compared to an “internal passport”. Dating back to the Mao era, it was introduced to control population flows and encourage migration to areas needing workers, while preventing slums from forming on the outskirts of large cities.

The rapid growth of internal migration has bolstered the working-age population without a hukou corresponding to their actual situation (177 million people, or 22% of the working-age population). While internal migration is now allowed, migrant workers from rural areas seldom obtain hukou from the city in which they reside or access the entitlements that come with an urban hukou. Migrant workers also work mainly in flexible, low-skilled jobs paid at a lower rate than workers with an urban hukou. Migrant labour is cheap for employers who pay virtually no social security contributions for migrant workers. China’s two-tier labour market thereby contributes to wage moderation, maintaining China’s cost competitiveness.

Living in a city without an urban hukou restricts access to property ownership, although restrictions have been relaxed in recent years in response to the real estate crisis. More importantly, migrant workers are not eligible for healthcare, education or government pensions in the same way as other workers. Migrant workers therefore save at higher rates than the rest of the population and human capital accumulation is slower at the aggregate level.

There has been much talk of reforming the hukou system and restrictions have been eased gradually, mainly in small- and medium-sized cities which attract fewer migrant workers.

Review of Public Finance Forecasts for 2023 and 2024

2025-01-20T00:00:00+01:00

The economic and public finance forecasts for 2023 and 2024 were drawn up amid much uncertainty with highly volatile energy prices, a very high inflation rate and unprecedented monetary policy tightening.

For 2023, while real growth was closely aligned with the forecast (0.9% vs 1.0%), high levels of inflation provoked more substantial revisions of nominal growth, that was initially projected at 4.6% in autumn 2022 then at 6.8% a year later, and which ultimately stood at 6.3%. For 2024, real growth, that was first forecast at 1.4%, was revised downwards to 1.1%, and the nominal growth forecast was reduced from 4.0% in autumn 2023 to 3.5% a year later as it was affected by the faster-than-expected fall in inflation.

The 2023 general government deficit was –5.5% of GDP (–5.3% excluding the change of base year for the national accounts by Insee, the National Institute of Statistics and Economic Studies), compared to the projection of –4.9% in autumn 2023. The 2024 deficit figure has not yet been finalised: the most recent official forecasts were for –6.1 % of GDP, following a projection of –4.4% in autumn 2023, that was revised to –5.1% in April 2024. These revisions are significant but not unheard of from a historical standpoint.

In 2023, the spontaneous growth in aggregate taxes and social security contributions, i.e. without factoring in discretionary measures, was much lower than that of nominal growth (2.6% vs 6.3% for nominal GDP), in contrast to 2022 which was an exceptional year. Such a contrast was anticipated as early as July 2022 but its scale was much larger than projected. Central government expenditure was lower than forecast unlike local authority expenditure.

In 2024, revenue from aggregate taxes and social security contributions was subject to major reassessments due to unexpected events in 2023 that were heightened by the delayed functioning of corporation tax and income tax. It was also slowed by lower nominal growth in GDP that was less driven by private domestic demand, and which had an impact on VAT revenue. In addition, there was a surprisingly high level of local authority expenditure whilst central government expenditure is expected to be lower than provided for in the 2024 Initial Budget Act due to management measures introduced during 2024.

Update

Following the publication by Insee, the National Institute of Statistics and Economic Studies, of the general government accounts, the 2024 general government deficit was ultimately −5.8%, that is to say 0.3 points of GDP more than the projection used in the 2025 Budget Bill and on the basis of which this edition of TrésorEconomics was produced in January 2025.

Revisions constitute an overall improvement of roughly €9.5bn and essentially concern:

• local authority expenditure (+€6.5bn), which turned out to be lower than expected when the 2025 Budget Bill was being prepared, due to a slowdown in this local expenditure starting in autumn 2024. For instance, local authorities’ investment expenditure rose 7.6% in 2024 compared to the 13.2% increase forecast in the 2025 Budget Bill, which was based on the latest accounting data from summer 2024. Operating expenses rose by 3.5% but this was still significantly less than the 4.6% projected in October 2024.

• central government expenditure (up €3.4bn), was less than forecast in autumn 2024 owing to a budget outturn that was even lower than estimated in the Initial Budget Act.

• the 2023 deficit was also revised to −5.4% of GDP, i.e. up 0.1 points compared to the provisional account published by Insee in May 2024.

Table 1 relating to the revision of the general government balance in 2023 and 2024 between the budget bills for 2024 and 2025 has been updated as follows :

Review of the French Government’s Economic Forecasts for 2023 and 2024

2024-12-19T00:00:00+01:00

The macroeconomic scenario of the 2023 Budget Bill, presented in September 2022, was drawn up amid great uncertainty. The repercussions of the Russian offensive in Ukraine on energy supply in particular, and the impact of monetary tightening in response to soaring inflation were major unknowns when calculating forecasts.

Despite this uncertainty, 2023 GDP growth (0.9% based on annual INSEE accounts published in May 2024) nearly matched the 2023 Budget Bill forecast (1.0%). The Consensus Forecasts, which estimated growth of 0.6% in September 2022 and which had hit a low point of 0.1% in December 2022, gradually converged with the French government forecast.

The main economic forecast assumptions were confirmed: winter 2022/2023 saw no energy supply shortages, and the French economy benefited from a catch-up effect, particularly in aircraft manufacturing and electricity generation. Growth drivers on the other hand were more balanced than envisaged in the Budget Bill: growth was sustained to a greater degree by foreign trade and to a lesser extent by consumption, with the savings rate remaining high. While business investment proved more resilient than expected, household investment fell further.

The 2023 Budget Bill forecast predicted a peak in inflation in early 2023, followed by a gradual decrease. This forecast was correct, with inflation reaching its peak in February 2023 and declining for the rest of the year, due to a drop in energy prices and then in food prices. Overall inflation for the year was however higher (4.9%) than the 2023 Budget Bill forecast (4.2%), which itself was higher than the Consensus Forecasts (3.6%).

The macroeconomic scenario underlying the 2024 Budget Bill, which was submitted in September 2023, forecast a pickup in growth in 2024 (1.4%). This growth forecast was reviewed downwards in February 2024: the adjusted economic scenario was set out in the 2024-2027 Stability Programme published in April 2024. This forecast for 2024 was adjusted upwards to 1.1% in the 2025 Budget Bill submitted in October 2024. The adjustment to the initial forecast was made primarily because of a less buoyant international environment and more sluggish consumption, despite faster disinflation than expected.

The Artificial Intelligence Value Chain: What Economic Stakes and Role for France?

2024-12-05T00:00:00+01:00

Artificial intelligence (AI) refers to various techniques enabling machines to simulate human intelligence. The AI value chain is divided into three main segments (see Chart below): (i) the inputs required to develop AI systems and services (computing power, data, specialised workforce); (ii) modelling, which includes the development of general-purpose AI models (foundation models) and specialised models; and (iii) the deployment of such models to end-users.

Regarding AI system inputs, France has no major companies on par with the global leaders in the chip manufacturing and computing power rental markets. However, it benefits from a skilled workforce and a thriving innovation ecosystem.

As for AI model development, a few French companies are emerging, but the segment is dominated by the incumbent Big Tech firms established prior to the advent of AI technology. These incumbents enjoy vertical integration thanks to their preferential access to upstream inputs and downstream distribution channels for their AI solutions (e.g. office suite software). They have also partnered with emerging AI firms to integrate AI production processes horizontally.

The dominance of the AI market by a small number of large, already mature firms raises issues of economic efficiency, fair competition, and sovereignty, with the risk of limiting the economy-wide diffusion of AI-related added value and productivity gains.

French Public Climate Finance for Developing Countries: an Overview and the Issues at Stake

2024-11-19T00:00:00+01:00

Together with other developed countries, France provides public finance to developing countries to assist them in implementing the Paris Agreement to mitigate climate change and adapt to its effects. In 2023, France provided €7.2bn to these countries in the form of loans, grants, equities and guarantees for their climate action.

France’s contribution helps to achieve the annual goal of mobilising $100bn for developing countries, set in 2009 at the 15th Conference of Parties (COP15) in Copenhagen. This goal was surpassed for the first time in 2022, with $115.9bn recorded by the OECD. France is one of the largest contributors among developed countries, and can be considered to provide more than its “fair share” in attaining this goal.

This public climate finance provided by developed countries is essential in certain regions and for certain investment types – particularly climate change adaptation investment. However, this financing only constitutes a minority share of climate finance in developing countries. The $100bn goal is set to be replaced in 2025 by another goal established in late 2024 at COP29 in Baku (Azerbaijan). This new goal is expected to mobilise even more public finance from even more countries, while also setting a bold target for private-sector finance, which is already significant but needs to be considerably ramped up.

Japanification: a Risk for China’s Economy?

2024-11-05T00:00:00+01:00

The “Japanification” of a country alludes to Japan’s economic situation starting from the early 1990s following decades of rapid growth. It is characterised by weak growth and inflation rates, and extremely low interest rates.

China currently bears many similarities to early-1990s Japan – its growth model is centred on industry and investment, and is reliant on buoyant exports. China is also laden with debt, and suffers from a population decline, a downward trend in growth (see Chart) and inflation, as well as a property sector crisis since 2021.

However, the extent of the decline in growth may be less considerable than in Japan given some of the Chinese economy’s strengths and its ability to learn from Japan’s difficulties. While China has reached the technological frontier in an increasing number of sectors, it is also looking to switch to a new growth model more focused on new technologies and on ramping up productivity.

The implementation of this new model could be hindered by China’s debt-laden local governments, and more generally there are lingering doubts over this model’s ability to sustain high levels of growth.

A similar fate to that suffered by Japan would mean a severe slowdown in the catch-up process, but not necessarily smaller productivity gains than in other countries: when adjusted for demographics, Japan’s growth had been indeed similar to that of other major advanced countries since 1990.

Minerals in the Energy Transition

2024-10-24T00:00:00+02:00

The energy transition is expected to involve use of mineral-intensive technologies, with high demand for certain so-called “critical” or “strategic” minerals such as lithium, graphite, nickel, manganese, silicon, rare-earth elements and copper.

In the short term, the global supply of critical minerals appears to be sufficient to meet the new uses related to the energy transition. Lithium and nickel prices have been falling since early 2023 against the backdrop of a sharp uptick in Chinese production and slowdown in global demand. Production nevertheless remains highly geographically concentrated, with a handful of countries holding a monopoly over the extraction of key critical minerals, and China now dominating refining and processing for the majority of these minerals.

Global demand could more than triple between now and 2050 in order to meet international and domestic environmental targets (see Chart below), with this spike in demand far exceeding current production levels for lithium, graphite and cobalt. Although many mineral-producing countries are eager to capitalise on their resources, the possibility of shortages cannot be ruled out – not least because the current low-price environment is weighing on the anticipated profitability of investments and new production sites, potentially leading to projects being postponed.

Many governments have responded to these risks, and to mounting geopolitical tensions, by introducing policies to secure and diversify supplies of critical minerals. At the same time, recent years have seen a sharp increase in trade barriers affecting these minerals, largely as a result of positioning strategies further down the value chain.

Disparities in Farm Income

2024-10-15T00:00:00+02:00

Income disparities between farmers are significant and depend on economic parameters such as farm size and production type.

In aggregate terms, real farm income per work unit has been growing on average since 2010, despite a dip in 2023 following a record year in 2022. Farmers’ incomes are subject to acute cyclical fluctuations due to climatic conditions and global food markets. However, farm subsidies help to stabilise these incomes to some extent.

Although the median standard of living among farm households is similar to that among all working French households, the headline figure masks significant disparities between farms and reflects a higher workload:

– In 2020, the poverty rate among people in farm households was 16%, ranging from over 20% for livestock farmers to 12% for arable farmers. By comparison, the poverty rate among the French population as a whole was 14%.

– In 2022, farmers worked an average of 15 hours more per week than the general population and were more likely to report working evenings, nights and weekends.

Farmers, most of whom work on individual holdings or with a small number of partners, tend to pay themselves little, preferring instead to invest in equipment and machinery in order to build up substantial business assets and achieve productivity gains.

There have been significant productivity gains in French agriculture over the past 60 years, but the lion’s share of the benefits have flowed to the downstream sector and consumers.

World Economic Outlook in Autumn 2024: Monetary Easing and Geopolitical Tensions

2024-09-19T00:00:00+02:00

Global growth is expected to reach 3.2% in 2024, a similar rate to 2023, before increasing to 3.4% in 2025. This outlook is a slight improvement on forecasts released in spring 2024. In 2025, global activity is anticipated to grow at the same pace as in the second half of the 2010s, supported by monetary policy easing and strong performances in emerging countries.

Growth is forecast to remain uneven across advanced economies. In 2024, activity is expected to be particularly robust in the United States and Spain, more moderate in Italy and the United Kingdom and flat in Germany. These advanced economies are experiencing different levels of growth due to disparities in consumption patterns and export performance. Growth rates are expected to converge in 2025, with an acceleration of activity in the euro area and a slight slowdown in the United States, primarily due to a weakening of household consumption.

Although still strong, activity in the major emerging economies – China, India, Brazil and Turkey – is projected to slow compared with 2023, particularly in China where structural imbalances are likely to continue to weigh on activity.

Following a contraction in 2023, global trade is anticipated to recover in 2024 and accelerate in 2025. Global trade is expected to be driven primarily by emerging economies and the United States, resulting in slower growth in global demand for French exports (see Chart).

Global activity could nonetheless be impacted by an escalation of geopolitical tensions, which are the main risks surrounding this scenario.

Nowcasting French GDP Growth During Exceptional Periods

2024-08-22T00:00:00+02:00

Nowcasting, or very short-term forecasting, is a crucial tool for understanding major changes in the economy and detecting turning points in the business cycle. Nowcasting is the first stage in the economic forecasts at the two-year horizon established by the Directorate General of the Treasury to prepare France’s budget acts and stability programmes.

In the period from 2020 to 2023, supply difficulties arising from the COVID-19 health crisis and Russia’s war of aggression in Ukraine played a greater role in restricting economic activity than demand for firms’ output (see Chart). France’s economic trajectory during this exceptional period was thus influenced more by supply factors than by demand factors that typically dominate.

The predictive performance of economic models based explicitly or implicitly on demand variables thus worsened during the crisis period, notably in the case of the nowcasting models that rely on composite business climate indicators to predict GDP growth.

Alternative models incorporating automatic input variable selection can be used to identify, from a vast array of data sources, those items that make the greatest contribution to improving predictive performance. Such models are simple to interpret and econometrically similar to conventional models.

For the recent period, an ex-post estimation shows that variables such as supply constraints in manufacturing, which are typically absent from conventional models, would have made the greatest contribution to improving short-term GDP forecasting for France.

Can Housing Needs Be Met by Using the Existing Stock?

2024-07-16T00:00:00+02:00

France has an enormous housing stock, the second largest per inhabitant among Organisation for Economic Co-operation and Development (OECD) countries. This situation is explained by several decades of high construction levels. Despite this, according to the National Institute of Statistics and Economic Studies (Insee), one in ten individuals is confronted with persistent difficulties in finding accommodation.

One solution to address this problem could be to make greater use of the existing stock; France currently has 3.1 million “vacant” dwellings. However, the vacancy period, features and location of these dwellings differ, and their actual potential use needs to be closely assessed depending on the characteristics of each region (see Chart).

Geographical analysis shows that, every year, around 15% of new constructions occur in a municipality where an equal number of housing units have been vacant for more than two years (20% for more than one year). This represents a non-negligible stock to address both housing needs and to fight urban sprawl, depopulation of town centres and land take.

Using this stock of vacant housing would require suitable public policies (investment, regulation, taxation) to encourage owners to put these dwellings back on the market, to foster renovation and refurbishment of the stock, and to revitalise districts with a large number of vacant housing units.

Carbon Pricing in Nordic Countries

2024-07-11T00:00:00+02:00

Nordic countries (i.e. Denmark, Finland, Iceland, Norway and Sweden) introduced carbon neutrality targets at a very early stage and made the decision long ago to raise their national carbon price levels in order to expedite the greenhouse gas (GHG) emission reduction process (see Chart on cover page).

High levels of explicit carbon pricing have had a significant impact in these countries. Carbon taxes have been a major factor in cutting CO2 emissions since the early 1990s, particularly in the heating and transport sectors, with Sweden acting as the trailblazer.

Just like the Alain Quinet report in France, several Nordic countries have estimated the carbon price required to achieve their climate targets and then, as in Denmark and Norway, have decided, in order to bridge the carbon pricing gap needed to achieve their climate objectives, to significantly raise their respective national nominal carbon tax rates in 2022 and impose double carbon pricing (carbon tax and European carbon allowances) on certain industries, thereby standing out from other European countries.

Concurrently, support measures were implemented to safeguard household purchasing power together with target subsidies and partial tax exemptions for certain industrial sectors. These measures helped to ensure the acceptance of carbon pricing.

Potential fossil fuel substitutes have also been promoted in industry, prompting the development of strategic industrial sectors such as low-carbon steel. Bioenergy (biomass-fuelled heating networks, black liquor) and electrification (electrical industrial processes, electrolysers, electric vehicles, heat pumps) have therefore established a foothold as a result of the increase in carbon prices. In 2023, far-reaching government support on an unprecedented scale was proposed for carbon capture and storage, most notably in Norway and Denmark. This proposal was made with a view to forming a Nordic hub that would play a pioneering role across the globe and could be used to reduce carbon emissions produced by certain industrial activities in the EU.

Mésange Vert, a New Model to Assess the Impact of Economic Shocks on France’s Carbon Emissions

2024-07-09T00:00:00+02:00

Mésange Vert extends the scope of the macroeconomic model Mésange (Modèle économétrique de simulation et d’analyse générale de l’économie) used by the French Treasury (DG Trésor). The new module quantifies the impact of economic shocks and policy reforms on France’s carbon emissions in the medium and long terms. Besides measuring the climate impact of standard shocks, it is also a useful addition to the toolkit for assessing economic and climate policies.

Mésange Vert is structured in two parts: energy and climate. The energy component gives a stylised view of the country’s final energy consumption and how it breaks down between gas, electricity and other sources, while the climate component calculates the carbon emissions associated with this energy profile.

The module is designed to be extremely flexible to use: the default settings include several energy sources (electricity, coal, oil and gas) and two economic agents (households and firms). Other features, such as the method for calculating energy demand and calibrating the model can all be easily adjusted as needed to fit modelling requirements.

Mésange Vert can be used, for example, to analyse and compare the economic and climate effects of a permanent increase in VAT and the carbon tax to generate extra revenue equivalent to one percentage point of ex ante GDP in each case, without recycling the revenue generated. Compared to a VAT increase, putting up the carbon tax would have a slightly lower negative impact on the economy. And, by specifically targeting energy use, the carbon tax option would lead to a far greater reduction in energy consumption than a VAT increase. In addition, the carbon tax would encourage households and firms to switch from fossil fuels to electricity, making the reduction in emissions proportionally greater than the drop in energy consumption.

Economic Implications of Guidance and Orientation in Education

2024-06-04T00:00:00+02:00

Effective guidance and orientation of young people to appropriate degree programmes is essential for reducing student failure in higher education and ensuring that students acquire skills aligned with the economy’s needs.

Shortcomings in the guidance and orientation process can lead to discontinuities in students’ studies, leading to extended time to earn a degree and to the acquisition of skills that are misaligned with labour market demand, resulting in reduced employability and lower lifetime earnings. In macroeconomic terms, this means structurally higher unemployment, more unfilled jobs and lower total factor productivity (TFP).

At the individual level, educational investment involves a trade-off between personal preferences, expected gains and the costs of education (including potential income foregone associated with the time spent in education). However, the guidance currently available to French secondary school students is not based on comprehensive, objective information to the extent that would be both feasible and desirable. Further, the allocation of student places in higher education does not sufficiently respond to current and expected labour market conditions (see Chart).

Improving the effectiveness of the guidance and orientation system would require greater visibility for certain academic and vocational tracks, as well as greater confidence by students that they can access these programmes. Paths to improving the economic efficiency of guidance and orientation programmes include: disseminating clear and comprehensible information; providing greater human support in schools, particularly through the involvement of role models; and ensuring a better fit between the allocation of places in degree programmes and the needs of the labour market.

The Impact of Brexit on the United Kingdom's Economy

2024-04-30T00:00:00+02:00

The United Kingdom’s withdrawal from the European Union (EU), which was voted for by referendum in June 2016, became effective on 31 January 2020. After a transition period, the UK left the single market on 1 January 2021. Brexit has had an impact on the United Kingdom’s economy and has dampened its growth potential through three main channels.

Firstly, owing to the reintroduction of non-tariff barriers, the UK’s trade in goods with the EU fell in 2021 to a greater extent than trade with non-EU countries, although the impact only seems to have been temporary. On the other hand, trade in services with the EU has been more lastingly affected, especially for financial and transportation services.

Secondly, business investment in most sectors has stalled since the 2016 referendum following a period of strong growth. Due to the effects of both Brexit and the COVID-19 pandemic, in Q2 2023, it was more than 20% below the level that it would have reached had it maintained the momentum seen between Q1 2010 and Q2 2016 (see Chart).

Lastly, restrictions on the employment of EU nationals have reduced the labour supply at a time when the UK’s labour market is under great strain. Employment of EU workers has levelled off since 2016 whereas it had rocketed during the years prior to the referendum. This has forced British employers to have greater recourse to non-European labour.

How Much Investment Is Required To Reach France’s Decarbonisation Targets For 2030?

2024-04-04T00:00:00+02:00

A large-scale redirection of investment flows towards decarbonisation items is required for France to achieve its climate targets. Many estimates of the additional low-carbon investment needs have been made, ranging from €55 billion to €130 billion per year from now to 2030 (an additional two to five percentage points of GDP). Comparing these estimates is particularly challenging given the wide range of definitions, methods and scopes used.

Theoretically, minimising the costs of decarbonisation should be based on a comprehensive analysis of the abatement costs of each intervention across the entire economy. In practice, the investment needs are calculated by sector.

When applying a consistent methodology across sectors, the gross additional investment needs in low-carbon items (compared to 2021) are estimated at approximately €110 billion per year by 2030.

When deducting the lower investments in (i) carbon-emitting alternatives (e.g. only factoring in the additional cost of an electric vehicle compared to an internal combustion engine vehicle), and (ii) newbuilds, assuming reduced land take, the net additional investment needs would drop to €63 billion per year (see Chart opposite). This net requirement could be further reduced by the reduction of other fossil fuel investments (e.g. lower demand for new internal combustion engine vehicles) and by energy bill savings.

These estimates are subject to considerable uncertainties. In addition, the share of the effort between public and private economic agents is not addressed in this paper, as it will depend on the set of public policies implemented.

The Economic Implications of Artificial Intelligence

2024-04-02T00:00:00+02:00

Artificial intelligence (AI) refers to a set of techniques which enables machines to simulate human intelligence. Its development is a technological revolution which, much like with previous revolutions of this kind, could generate profound economic changes. While research to quantify the impact of AI is still in the exploratory stage, such work provides some preliminary insights.

On a macroeconomic level, it is too early to empirically discern an impact on growth, but some initial microeconomic studies suggest that certain specific applications of AI have a significant positive impact on individual worker productivity. In a given job, these gains benefit the least productive workers the most, allowing them to catch up to their most productive peers. However, the impact of AI on business productivity has been found to be modest for the time being. This may be due to companies’ still limited and uneven adoption of AI, although there is more widespread adoption among large companies and digital firms.

The theoretical impact of AI on employment is uncertain. In the short term, this impact will depend on the speed at which AI is deployed, the shift of certain occupations towards AI-complementary tasks and the reallocation of labour towards occupations in growing demand. Furthermore, initial empirical estimates indicate that the tasks and occupations impacted by AI will not be the same as those affected by previous technological revolutions. Skilled occupations are expected to be more impacted by AI due to its ability to perform abstract, non-routine tasks, whereas the previous waves of automation and computerisation had impacted unskilled occupations and mid-level occupations, respectively.

These various findings point to the need to strengthen science curricula in primary and secondary education and AI curricula in higher education, to focus on continuing training for occupations affected by AI and to remove certain barriers to the diffusion of artificial intelligence, particularly by adapting competition policy to its particular qualities.

Implementation of Monetary Policy in the Euro Area and the United States

2024-03-26T00:00:00+01:00

Monetary policy refers to the decisions made by a central bank to influence the cost and supply of money in a given economy. The primary mandate of the European Central Bank (ECB) is to maintain price stability while the United States Federal Reserve’s (the Fed) dual mandate is to ensure stable prices and maximum employment. On the price stability front, both of these central banks have set a 2% inflation target over the medium term.

Policy rates are generally the main instrument used by central banks to carry out their mandate. Policy rates are interest rates applied by central banks to the loans they grant to commercial banks and to the deposits they receive. These rates have an impact on the real economy in a myriad of ways: interest rates, asset prices and the exchange rate.

For the past fifteen or so years, the Fed and the ECB have adjusted the way their monetary policy is implemented to cope with various crises: the 2008 financial crisis, the 2010 European sovereign debt crisis, the COVID-19 pandemic in 2020 and, most recently, an inflation shock in 2021 exacerbated by Russia’s invasion of Ukraine in 2022.

In order to handle the fallout from these crises and circumvent the zero lower bound, the ECB and the Fed have adopted a range of new “unconventional” instruments, such as asset purchase programmes (quantitative easing) to influence long-term rates as well, forward guidance on rate expectations, longer-term refinancing operations to bolster bank lending and negative deposit facility rates.

The stances taken by the Fed and the ECB in their policies had been similar since 2008, except during a period between 2015 and 2019 when the Fed normalised its policy by raising its rates while the ECB maintained a low-rate policy. The ECB tended to have a more delayed response to the first few crises than the Fed, but it managed to adapt its instruments just as quickly and robustly to deal with the pandemic.

Soaring inflation in the wake of the pandemic, which has been significantly above the Fed and ECB inflation targets since 2022, has driven the two central banks to tighten monetary policy rapidly (see Chart).

World Economic Outlook in Spring 2024 Moderate and Uneven Growth

2024-03-19T00:00:00+01:00

Global growth is projected at 3.1% in 2024, mirroring the pace set in 2023, with a slight uptick expected in 2025 to 3.2%. This outlook marks a modest improvement over previous forecasts from autumn 2023. Despite easing production constraints and a confirmed inflationary pullback, the global economy remains shackled by the lingering effects of monetary tightening and geopolitical uncertainties. The global economy’s growth trajectory, therefore, slightly lags behind the late 2010s average.

Growth in advanced economies is anticipated to remain subdued, with significant disparities among countries. In 2024, economic activity is expected to be robust in the United States and Spain but sluggish in other major advanced economies like the United Kingdom and Germany. By 2025, growth rates are anticipated to converge, driven by an acceleration in the euro area and a slowdown in the United States, assuming a gradual return of the savings rate to its historical average.

Major emerging economies like India, Turkey and Brazil should see a slowdown in 2024, followed by a rebound in 2025. China’s economy is projected to continue slowing, hampered by its failure to pivot its growth model towards domestic demand.

After a decline in 2023, global trade is expected to recover in 2024 and 2025. However, the global demand for French exports is predicted to be less robust than international trade. This reflects the more sluggish activity in the euro area, which is expected to rebound modestly in 2024, before accelerating in 2025 (see Chart on this page).

Geopolitical uncertainties, the timing and magnitude of key rate cuts, and shifts in consumer behaviour emerge as the primary risks surrounding this scenario.

The EU Single Market, a Driver for Economic and Trade Integration

2024-03-05T00:00:00+01:00

The single market plays a central role in European integration, and its purpose is to ensure the political stability and economic prosperity of its Member States. As of 2023, the market included 27 countries, 23 million businesses and nearly 450 million people, making it the world’s largest developed market. Within this market, economic and financial relations between Member States are very close (see Map on this page).

The EU single market has met its initial expectations, promoting innovation, boosting productivity and enabling convergence in the European Union (EU). The strengthened internal economic relations and economic convergence made possible by the single market have helped significantly raise incomes and the standards of living in EU Member States.

Between 1984 and 2019, EU economies’ goods export structures have become more similar, most likely reflecting the development of intra-industry trade. The single market has therefore not led to increased relative specialisation within the EU, where each Member State would have specialised in different sectors.

Intra-EU Mobility of Persons

2024-02-27T00:00:00+01:00

The goal of the European Union (EU) is to build a common economic market and drive the emergence of an European citizenship grounded in the concept of the free movement of persons, goods, services and capital. Whilst for persons, EU legislation initially covered workers’ mobility, it has been extended to encompass other reasons for migration, in particular for studies under the Erasmus+ programme.

For the purposes of international statistics, an immigrant is defined as a person who lives outside their home country (thus excluding tourism or cross-border commuting). Owing, in particular, to the progressive removal of statutory obstacles, the average share of immigrants in the populations of European countries has more than doubled since 1960, jumping from 4.5% in the current 27 EU Member States to over 11% in 2019. In that year, out of these 11%, 3.7% of EU inhabitants originated from another EU Member State (see Chart). On average, these intra-EU immigrants are more highly qualified and more often in employment than non-EU immigrants.

EU membership leads to a sharp decline in border frictions that could impede the mobility of persons to and from the country. Accession should go hand in hand with an immediate reduction in the formal and informal barriers to the migration of other Europeans to the country in question, which could fall by almost a third a decade after joining.

This removal of barriers to the intra-EU mobility of persons helps ensure the smooth workings of the internal market by providing businesses and workers with fresh opportunities for matching supply and demand which foster the EU’s productivity. The regional and national impact is especially positive when the skills of immigrant workers complement those of nationals, or when immigrants take up unfilled vacancies in certain sectors in the host country.

Despite the removal of statutory barriers to intra-EU mobility, there are still practical barriers such as those relating to language and culture, the issue of the recognition of skills and qualifications on the labour market, and the heterogeneity of social security systems.

How Dependent Are Emerging Market Economies on China's Growth?

2024-01-30T00:00:00+01:00

China is now the top export market for many emerging countries, as its average share of exports from these economies rose from 4% in 2002 to 12% in 2022. Additionally, the growth of outbound Chinese tourism has created new forms of dependence, especially for certain Asian countries.

Emerging economies are also financially dependent on China through commercial and sovereign loans. The main recipient sectors (energy, mining and transport) and regions (Asia and Africa for almost 60% of the loans) are in line with China’s strategic priorities, particularly in terms of its supply needs. China’s total outward foreign direct investment (FDI) flows remain low in relation to loans, but Chinese FDI accounts for a significant share of the FDI stock of several countries (Pakistan, Angola, South Africa and Thailand).

China’s slower medium-term growth – which the IMF has projected will fall to 4% over the next few years, down from 8% in the 2010s – will affect emerging economies through two primary channels. On the trade side, slower Chinese growth will result in (i) a decline in domestic demand and imports, and (ii) price and volume effects on commodities. On the finance side, China’s slowdown will play a role in the continued push, which began in 2015, to reduce the flow of its financing (loans and FDI) to emerging economies (see Chart), and in the country’s geographic and sectoral refocusing, as already reflected in the shift in the official stance regarding the Belt and Road Initiative (BRI). Asian countries and commodity-exporting countries are expected to be the most vulnerable to China’s structural slowdown due to their close trade ties with Beijing.