France: And now comes the spending - ING

As the labour market reform is now coming into force, the number of unemployed will be published tonight by INSEE, points out Julien Manceaux, Senior Economist at ING.

Key Quotes

“August should show an encouraging drop. There should be more in the coming months, especially as President Macron is starting to show the money: PM Philippe unveiled yesterday the details of Mr Macron’s electoral promise of a €56.3bn structural investment plan.”

“After having completed the second major reform of his mandate (the labour market reform was published officially yesterday, just after the last opposition march gathered with only a few thousand people on Saturday), it was time for Mr Macron to unveil his plan for structural investments. This comes just after his party lost Senatorial elections this past weekend. The Senate was only partially renewed but, as expected, LREM will not have a majority there and will have to compose with other parties to conduct constitutional reforms.”

“The structural investment plan will cost €56.3bn over five years, above what Mr Macron had promised during his campaign (€50bn):

• €5bn will finance the reform of public administrations
• €15bn will finance initiatives in agriculture, public health and transports in the line of the PIA plans (Investment Programs for the Future) initiated by President Sarkozy in 2010 and continued by Mr Hollande
• €15bn will finance the ecological transition, mainly the reduction of nuclear power in the French energy mix from 70% to 50% (current 2025 target)
• €15bn will finance new professional training programmes aimed at the1 million unemployed 16-24 year-olds and 1 million long-run unemployed. This will be added to the previous government helped contract system, although it will be reduced sharply in 2018.”

“The plan should be spent evenly in the five years starting in 2018. Together with the labour market reform, it should help to support the economic recovery: growth – having slowed down from 1.2% in 2015 to 1.1% in 2016 – is likely to rebound to 1.7% in 2017.”

“The number of unemployed for August should be published today. It should show an encouraging drop. However, as long as the benefits of the reform are not translated in hiring intentions, the evolution of that number will remain limited. Finally, note that today President Macron will give his views on the future of Europe. We will analyse them in light of the German election results.”