Germany has a tradition of publishing full-year GDP results ahead of the first estimate for Q4. On a calendar-adjusted basis, GDP rose by 0.5% in 2013, with the strongest contribution coming from private consumption (around ½%) and a slight negative contribution from net exports (around -¼). No firm conclusions can be drawn for Q4. Assuming no revisions for Q1 to Q3, the q/q result for Q4 lies between 0.1% and 0.4%. Our current take is 0.3%. A flash estimate will be published on 14 February. We expect private consumption and companies’ capital spending to strengthen further this year.
France: Being back against the wall usually increase the propensity to act. As indicated in his new year’s address and reiterated yesterday, French president François Hollande now mainly looks on the supply side to foster growth. He has just no other choice given the fiscal deficit. “The time has come to resolve the main problem of France: its production. We must produce more and better. It’s on the supply side we must act. Supply itself creates demand. We must continue to reduce the cost of labour.” Hollande promised to cut payroll taxes for French companies to the tune of € 30 bn by 2017. That would cut the average total wage bills for employers by roughly 5.5%. However, it seems that the tax credit of € 20 bn (on corporate tax) that was announced last year is included, so that € 30 bn is a gross number. In what is called a “pact of responsibility”, employers’ associations (kind of) promised to create more jobs badly needed given an unemployment rate of 11%.
How to fund it? Hollande wants to cut public spending by € 15 bn this year and by € 50 bn more in the next three years, but where and how is yet unclear. He mentioned efficiency gains in the public sector and reducing abuse of the social security system, but that will not be enough. So, many details still have to be worked out. Other aspects in his speech also remained quite vague. For example, an “energy alliance” between France and Germany is hard to imagine given German resistance to nuclear energy and French preference for it.
Reactions in France where quite interesting. “Good, but too little, too late” could be heard from the conservative/liberal opposition, while the far left and right accused Hollande of turning to “ultra-liberalism”. What would they call him, if he had announced far-reaching reforms of the labour market or the social system which he has not. Calling himself a “Social-Democrat”, Hollande denies having made a u-turn. Another Social-Democrat, then German chancellor Gerhard Schröder, started reforming the German economy in March 2003 with his speech on “Agenda 2010”. At that time, the unemployment rate was 10.5%. His much broader reform programme ran into huge resistance both from friends and opponents. But he managed to overcome it at the cost of losing the 2005 election. In 2005, however, the economy picked up, thanks to reforms but also because of a global economic upswing. If that is any measure, Hollande will need both a lot of force and staying power until French competitiveness will be restored.
In our view, the measures outlined yesterday can only be a starting point for a comeback of the second-largest euro area economy. We expect the French economy to grow by 0.8% this year. That is half the rate we expect for Germany.
Nordea