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ORIGINAL FRENCH ARTICLE: L’Insee prévoit dix années de croissance molle

by Clotilde Mathieu

French Statistical Bureau Foresees Ten Years of Weak Growth

Translated Saturday 22 June 2013, by Gene Zbikowski

The INSEE believes that economic activity will increase by 1.5% a year in the decade from 2015 to 2025 due to the fall in productivity. Many economists say the forecast is very optimistic.

France will not return to its pre-crisis rate of growth in the coming decade. According to the National Institute for Statistics and Economic Studies (INSEE), the rate of growth in the years 2015-2025 will at best be 1.9% a year and at worst 1.2%, with a central scenario of 1.5%. This rate is far below the 2.2% rate of the 1994-2007 period and below the 2% average growth rate that figures in the multi-year program for government finances for the years 2015 to 2017. Hence it is a very serious warning, all the more so as many economists say the INSEE’s forecast is very optimistic. For example, the economists at the Natixis finance and management bank anticipate a potential growth rate of 0.5% according to “the most usual method of calculation.” Moreover, in economics, nothing is certain in advance.

This potential growth is nothing other than the increase in economic activity which can be obtained not only by using all the means of production (labor, machines) but also by taking future technical progress (productiveness) into account. In the 1994-2007 decade, productivity did increase with the IT revolution and the entry of better trained and qualified workers on the labor market, even though, from 1993, momentum slowed due to “the reductions in social security contributions on low salaries, which favored the hiring of poorly-trained and poorly qualified workers,” INSEE points out.

With the recession, total-factor productivity (TFP) received an unholy punch on the nose. Whereas annual TPF growth had been 0.9% a year up to 2007, it went into the red, down 1.2% on average from 2008 to 2010. “In each recession, productivity falls. We’d already noted this in 1993 and when the first oil shock took place,” Corinne Prost, the head of the economic studies service, explained. The culprit is the fall in investment, the INSEE pointed out.

To get the machine working again, it will be necessary to invest once more, not only to reverse the unemployment curve but also in “technological improvements and progress in the organization of work,” the INSEE explains. “Now the Internet, which is the latest big jump in technology, has not had the same knock-on effects as the other great technological revolutions, such as electrical power, steam power, or water power. Its impact on growth is losing momentum,” Corinne Prost said. But the INSEE sees another source of growth in demand, which could permit “effective growth that is higher than potential growth.”

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