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ORIGINAL FRENCH ARTICLE: Activité en baisse, chômage en hausse, le CAC 40 pavoise

by Pierre Ivorra

Economic Activity Down, Unemployment Up, Paris Stock Index Rejoicing

Translated Wednesday 7 September 2011, by Gene Zbikowski and reviewed by Henry Crapo

The biggest corporations listed on the Paris Stock Market made a 47-billion-euro profit in the first half of 2011, up over 7% compared to 2010. The hike came at the cost of a fall in wages and jobs.

The flagships of the French economy, the giant corporations listed on the CAC 40 stock index and the genuine multinational corporations, made a total profit of around 47 billion euros, up 7.4% over the same period in 2010. Of course, the results remain contrasted, and while 27 corporations have improved their net result, 13 have experienced a fall. Nevertheless, it is to be noted that only Carrefour and Veolia Environnement made a loss, all of their brethren having made a profit.

The luxury market is doing marvelously.

Total tops the list with a 6.7-billion-euro profit, up 16.8%. Total surfed on the rise in oil and fuel prices and hence on a lightening of auto drivers’ purses. The other two monster energy corporations had contrasted results. EDF’s profits are way up (up 53.9%) while GDF Suez’s profits are sharply down (down 23.2%), essentially due to scope effect. The luxury market is doing marvelously, as is proved by LVMH (up 24.8%), while Mrs. Bettencourt, the main shareholder in L’Oréal, cannot complain about the world’s number one shampoo company, whose net result was up 11.6%. Among the banks and financial shares, BNP Paribas is clearly up but the Société générale is nose-diving (down 22.5%).

How are these blossoming results among the crack corporations of the Paris Stock Market to be explained? There are at least two explanations. Renault exemplifies the first one: profit-seeking in the most exotic countries. In the first half of 2011, the Renault group made record sales with 1.4 million cars sold. On a world market that was up 5.9%, Renault’s sales rose by 1.9% compared to the first half of 2010. In fact, Renault realized its growth in Eurasia (up 73.3%) and in the Americas (up 34.9%). Renault now sells 39.5% of its cars outside Europe, as against 33.4% in 2010. In Europe, sales fell 7.4%. Its market share is shrinking. In France, it registered a 9.9% fall in sales, notably because of what management discreetly describes as “supply constraints” and a bigger market than expected. In truth, Renault cut its personnel and production capacity in France too much, which caused bottlenecks. These management choices on the part of the automakers explain the sharp rise in car imports in the first six months of 2011 (up 8.6%, following a 0.6% rise), in particular imports from Germany.

Public aid hurting wages and jobs.

This is the second reason for this apparent recovery of the Paris Stock Market Index – the mobilization of public aid to help the corporations during the crisis was undertaken without any social criteria, so much so that the revival, certainly, allowed corporate profitability to recover, but this happened at the cost of wages and jobs, with an increase in the off-shoring of production. This explains why the car trade deficit has become the second-biggest trade deficit, after the energy trade deficit.

But our crack Paris Stock Market corporations had better watch out for the backlash. Growth in the emerging markets is beginning to flag and the fall on the stock markets in July-August will weigh down on balance sheets.

Carrefour in the red.

Carrefour, the world’s second-biggest retail corporation, is, with Veolia Environnement, the only corporation listed on the CAC 40 stock index to show a negative net result of 249 million euros in the first half of 2011, a 365% drop compared to the first half of 2010. In a context of weak consumption, Carrefour has not been able to right itself, despite successive relaunch plans. Following the “Forward!” plan in June, the CEO, Lars Olofsson, announced the “Reset” plan on August 31.

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