After its PMI figures disappointed in April, is France Europe’s real problem country?

Anna Stupnytska is global economist at Fidelity Worldwide Investment, says Yes


The tick-down in France’s PMIs this month is likely to be more a reflection of Greece-related uncertainty weighing on confidence, and still-subdued global demand. The fall in Germany’s reading confirms that April’s weakness is broad-based, not necessarily to do with country-specific factors. However, France is significantly lagging behind most of the euro area countries on structural reform. On one measure of competitiveness – unit labour costs – France has shown little improvement so far and much more needs to be done to address its underlying economic issues. Given the current political environment and elections in 2017, bolder reforms are unlikely to be introduced any time soon. This means that France is set to continue underperforming relative to Germany, as well as some peripheral country reformers, such as Spain, at least for now.

Vicky Pryce is chief economic adviser at the Centre for Economics and Business Research, says No

The latest PMI data showing a further contraction, faster than expected, is a blow. The problem is domestic demand stagnating and a fall in employment. With slower growth, the deficit has been cut more slowly and the European Commission has given France an extra two years to achieve the target of 3 per cent. In other circumstances, the country, with a deficit of over 4 per cent, would be worrying markets and would have had to pay considerably higher interest rates for borrowing. But it will increasingly benefit from the massive injection of liquidity under QE, which is keeping yields down. The weakness of the euro should further help exports, and low inflation should assist living standards. There are weaker countries around – Finland, for example, which is also moving into recession. And nothing compares with Greece, which is being starved of liquidity and, for the moment, is ineligible for QE.