Report on the Economy of France

Question: Discuss about the Report on the Economy of France. Answer: Introduction Currently, France is the fifth-largest economy in the world. The service sector is the primary contributor to countrys economy. Notably, 70 percent of the countrys GDP is produced by the service industry (France Economic Outlook 2016). Primarily, the countrys main exports include machinery and transportation equipment, aerospace and plastic among others. On the other hand, its imports include machinery, automobiles, and crude oil. The countrys tourism sector is also booming, making France one of the most visited countries. The unemployment rate has stabilized over time although it is still high at 9.9% as at 2016 (OECD 2016). Current Macroeconomic Situation Consumer price levels rose from 0.5 percent to 0.6 percent in December 2016 (France Inflation, 2017). Notably, this was the highest inflation level since May 2014. Particularly, food, energy and service prices have increased. The core price indicator (ISJ) dropped by 0.1% in December. Similarly, the Harmonized Index of Consumer Prices Stagnated between October and December. The inflation rate averaged 4.5% from 1958 until 2016 (France Inflation 2017). In addition, income inequality is predominant in the France economy. Redistributive taxes and transfers are a possible solution to income inequality. Increasing job opportunities and investments in education and skills are appropriate measures to reduce unemployment rates. Better education increases employability chances for the unemployed. Gender equality when it comes to wages in employment be implemented. The OECD Economic outlook report suggests that women earn 15% less than men. Eradication of this kind of discrimination will go a long way in eradicating income inequality and provide employment opportunities for more female workers. In 2015, the nations gross national income was estimated at 2.544 trillion dollars. In that year, the gross domestic product increased by around 1.1% percent (CIA, 2017). However, the high level of government expenditure and slurry economic activity slowed the countrys growth rate. Over the past few years, the country has been experiencing significant budget deficits. Last year, the budget deficit was approximately 9.9 percent of the recorded GNP. Even so, the GDP growth rate has increased over the years. Specifically, the growth rate rose from 0.6% in 2014 to 1.3% in 2016. In the same year, the GDP per capita was recorded as $42,400 (CIA, 2017). It is imperative to note that the levels of unemployment in the country are significantly high. For instance, the unemployment rate increased from 7.8 percent in 2008 to 9.9 percent in 2014. Particularly, youth unemployment is a major challenge. In 2015, unemployment levels rose to 10.8 percent (Overview, 2016). Primarily, unemployment is caused by lack of job opportunities. Lack of demand for goods and services leads to more job layoffs increasing the number of jobless individuals. Underemployment and youth unemployment lead to underutilization of economic resources. Income inequality in France is almost equal to the OECD average. Between 2007 and 2011, France experienced the highest increase in disposable income inequality (Loiseau, 2014). Recently, income inequality rates have increased by 1.6percent. Also, gender pay gap has been widening since 2000. As such, women in France earn approximately 14 percent less than their male counterparts. Also, the gap between the poor and the rich has widened over the years (Loiseau, 2014). What is more, public debt has strained the countrys economy. By and large, the high government spending has paralyzed growth of French economy. Foreign borrowing of finances to fill budget deficits have reached high levels. However, the government has taken steps to reduce these deficits by reducing its expenditure. The high government spending is attributed to the fact that France has one of the largest public sectors in the world. Thus, the massive public debt results from high public spending by the government to provide goods and services to its citizens. Major Macroeconomic Problems Slow Growth Frances biggest economic problem is slow economic growth (Walker, 2016). Last year, the country recorded approximately 0.5 percent growth. Likewise, the level of economic activity was estimated at 2.8 percent in that year. Particularly, the slow growth rate has been due to the continued labor market challenges (The Economist, 2017). Primarily, these problems arise from the dual job market in the country. The dual market system is characterized by high wages, promotion prospects and job security offered to insiders. As a result, the younger labor force can only access short-term work contracts or none. Furthermore, high social security contribution requirements have added to the high labor costs leading to slurred economic growth rate in France. Additionally, the slow growth rate is caused by the overly large budget deficits in the country. The deficits are attributed to high government expenditure amidst limited government revenue. Notably, the countrys government spending was approximately 56 percent of the GDP. This figure is extremely high compared to OECDs average of 43 percent (Elder, 2015). High public expenditure can be attributed to the large size of the country and huge foreign borrowing. Reduced government expenditure can be achieved through limited foreign borrowing and spending. Private sector investment incentives are also likely to reduce government expenditure to the public. High Unemployment High unemployment levels is another major challenge for the French economy. Today, approximately 10.2 percent of the workforce is jobless. Markedly, this rate around the average target rate for the Eurozone. The level of youth unemployment is relatively high in the country. As such, reports indicate that one in every four persons below 25 years is jobless in France (Elliott Penketh, 2014). Besides, the existence of welfare programs is a great disincentive for individuals in the country to take up low paying jobs. Also, extensive business regulation in the economy discourages new investments, thereby reducing the number of employment opportunities. What is more, the heavy burden of taxation discourages work, savings and investment opportunities thereby increasing the levels of unemployment. Weak demand for products curtails economic growth (Loiseau, 2014). The high levels of unemployment have also caused an increase in poverty and homelessness in France. Primarily, poverty is a consequence of unemployment. Particularly, lack of wages incapacitates the ability to afford basic needs such as housing facilities (Elliott Penketh, 2014). Additionally, poor infrastructure, low academic qualifications and poor mental and physical health are among the myriad of challenges facing the French population. Illegal immigration poses employment challenges. Illegal immigrants increase strain on job opportunities which would otherwise be for the unemployed citizens (France Economy, 2010). Recommendations Solutions for Slow Economic Growth The Banque de France is the central bank of France. Predominantly, the central bank is tasked with the duty of formulating and implementing monetary policy in the country. The central monetary policy of the Eurozone has been Frances policy since 1999 (Francesco-Mayot, 2017). Today, the monetary authority implements interest rate policies. Also, the bank utilizes monetary policy instruments to maintain low inflation levels in the country. In addition, the central bank maintains relatively low refinancing rates. Consequently, all these measures have led to increased economic growth in France. The government should also encourage private sector investments to increase the level of economic activity in the country. The increase in the aggregate demand for goods and services in the economy will spur economic growth. Creation of innovation centers will help improve the aggregate economy. Moreover, the government should encourage investments in research and development. By and large, such investments will encourage economic productivity and development in the country. Consequently, this would lead to increased economic growth in France. Similarly, tax benefits and tax breaks should be implemented in the country. Such an action will go a long way in increasing the level of disposable income available to firms and households. In turn, this will increase the aggregate demand and spur economic growth. Additionally, it will act as an incentive for more investment. Consolidation of government finances will also enhance the level of economic growth. Typically, reduced government expenditure can be achieved through budget cuts and more private sector participation in the French economy. Solutions for high unemployment Meaningfully, the duality of work in the country should be reduced. Thus, the government, in collaboration with trade unions should devise systems for retrenching employees, especially those on permanent work contracts. These procedures could be simplified and shortened. Furthermore, redistributive tax regime could be instigated to incentivize new investments and labor force to seek employment opportunities. Moreover, an increase in demand for goods and services will create more job opportunities for the unemployed population. Low labor costs will act as an incentive for employers to hire more workers. Furthermore, this will create more job opportunities for the unemployed. Consequently, unemployment levels will drop. Budget cuts have been implemented since 2003 to reduce government spending (Macroeconomic Developments, 2017). The introduction of legal avenues for asylum seekers will help reduce illegal immigration. Immigration contributes to unemployment levels in France. Illegal immigrants should be deported to free employment opportunities for French citizens. Additionally, Labor market reforms are crucial to increasing economic growth. Simpler layoffs procedures and labor court reforms propel economic growth. By and large, modification of unemployed persons benefits to incentivize the unemployed to seek job opportunities will reduce unemployment. Similarly, vocational and adult training will help match worker skills with a requisite job in the labor market. Subsequently, this will reduce long term unemployment or youth unemployment. Conclusion France is a growing economy with a myriad of challenges. However, the government has to implement measures and policies to stimulate economic growth. Predominantly, unemployment and slow economic growth rates have been the main cause of slurred economic growth in France. Poverty, homelessness, inflation, high interest rates are other economic challenges. Reforms in the labor force sector will help reduce unemployment. Tax reforms should be implemented to encourage more investments in the economy. In the past few years, the country high inflation rates and high consumer price indexes. Regardless, France shows signs of economic growth levels. References Overview of the French Economy. (2017). About-france.com. Retrieved 24 January 2017, from https://about-france.com/geo/french-economy.htm Walker, A. (2016). What is the French economic problem?. BBC News. Retrieved 24 January 2017, from https://www.bbc.com/news/business-36152571 Elliott, L. Penketh, A. (2014). France's economics ills worsen, but all remedies appear unpalatable. The Guardian. Retrieved 24 January 2017, from https://www.theguardian.com/world/2014/aug/31/france-economy-malaise-unpalatable-remedy Europe: France. (2017). Central Intelligence Agency. Retrieved 24 January 2017, from https://www.cia.gov/library/publications/resources/the-world-factbook/geos/fr.html Macroeconomic Developments and Policy Issues. (2017) (1st ed., pp. 2-55). Retrieved from, https://www.etui.org/content/download/2114/23501/file/Chap+1.pdf Francesco-Mayot, S. (2017). There are no easy solutions for France's economic woes. The Conversation. Retrieved 24 January 2017, from https://theconversation.com/there-are-no-easy-solutions-for-frances-economic-woes-10181 France Economic Outlook. (2016). Focus Economics. Retrieved 24 January 2017, from https://www.focus-economics.com/countries/france France Economy, Politics and GDP Growth Summary -. (2017). The Economist. 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