Current economic developments

By Rafael Cezar and Florian Le Gallo

The European Union’s exchanges with the United States generate a significant trade surplus but are also characterised by a substantial foreign direct investment deficit. This deficit reflects certain choices made by multinational firms with regard to their activities’ locations, particularly the placing of US subsidiaries in Europe. We propose an interpretation of these transatlantic exchanges using an aggregate that is broader than the balance of goods and services alone.

An expanded EU-US balance almost in equilibrium (2012 to 2017)
Chart 1: An expanded EU-US balance almost in equilibrium (2012 to 2017) Sources: Eurostat (customs data on exports of goods, non-financial services) and BEA (customs data on imports of goods, financial services, foreign direct investment flows). Authors' calculations.

By Ludivine Berret, Bruno Cabrillac and Céline Rochon

G7 countries activated several economic policy levers to respond to the 2008 crisis, in particular monetary and fiscal policy. As a result, their ability to stimulate the economy or deal with future crises has been reduced. Consequently, the temptation to conduct beggar-thy-neighbour policies, despite their harmful effects, could be exacerbated. Even though its weight in global GDP has declined significantly since the late 1980s, the G7—whose presidency is held by France in 2019—remains the appropriate forum for curbing this temptation.

Chart 1: Reduction of the weight of the G20 and the G7 in global GDP
Chart 1: Reduction of the weight of the G7 in global nominal GDP Source: Datastream and IMF-World Economic Outlook (WEO).

By Clément Mazet-Sonilhac and Clément Malgouyres (with Juan Carluccio and Thierry Mayer)

The diffusion of information and communication technology (ICT) is considered to be a factor for economic growth, notably in developed countries. In particular, the diffusion of broadband internet could improve firms’ ability to find trading partners abroad as well as products suited to their needs. In France, the roll-out of broadband between 1998 and 2008 corresponds to a substantial improvement in firms’ imports.

Chart 1: A decade of gradual broadband roll-out
Chart 1: A decade of gradual broadband roll-out Source: Banque de France and authors’ calculations

By Gilbert Cette and Ombeline Jullien de Pommerol

The diffusion of information and communication technology (ICT) and the associated benefits in terms of growth appear to have petered out at the start of the 2000s in advanced countries. This suggests we are experiencing a pause in the third industrial revolution, ahead of the incipient shock linked to the digital economy.

Chart 1 – Stabilisation of the nominal ICT capital coefficient since 2000
Chart 1 – Stabilisation of the nominal ICT capital coefficient since 2000 Source: authors' calculations using ICT investment data from the OECD.

By Adrien Boileau and Olivier Gonzalez

The Economic Modernisation Act has reduced payment periods, by capping them, for the most part, at 60 days. Today, average payment times are stable, but late payments continue to weigh on the cash flow of businesses, which seem unwilling to pay their suppliers faster so as not to weaken their solvency. Yet reconciling these two goals is possible.

Chart 1: Sharp fall in days payable outstandings (DPOs) and days sales outstandings (DSOs) as a result of the Economic Modernisation Act
Chart 1: Sharp fall in days payable outstandings (DPOs) and days sales outstandings (DSOs) as a result of the Economic Modernisation Act Source: Banque de France –FIBEN database, data to October 2017.

By Hadrien Camatte and Jean-François Ouvrard

According to the May 2018 revised national accounts, the net borrowing of non-financial corporations improved slightly over the previous 10 years to 0.4 pp of GDP in 2017. This mainly reflects the sharp reduction in net financial expenses, while the share of compensation of employees and gross investment in value added increased.

More favourable results for the net borrowing of NFCs using a 2014 base (% of GDP)
Chart 1: More favourable results for the net borrowing of NFCs using a 2014 base (% of GDP) Source: Insee national accounts.

Foreign direct investment (FDI) inflows are often considered a complement to domestic savings that facilitate the financing of local investment projects. However, as a result of increased competition, they tend to crowd out domestic investment in transition countries in the short term. This effect is mitigated if local financial markets are sufficiently developed.

Domestic investment is crowded out as a result of FDI entry.
Chart 1: Domestic investment is crowded out as a result of FDI entry. Note: Dark blue curve: effect of FDI inflows on domestic investment; red curve: greenfield FDI (creation of a new company ex nihilo); dashed blue line: mergers and acquisitions.

By Stéphane Lhuissier
The 2008 financial crisis and the sovereign debt crisis in the euro area led to major recessions. By contrast, the macroeconomic impact of the bursting of the technology bubble in 2000 was mild. The reason behind these all-or-nothing effects is amplification: a fragile financial system makes economic agents more sensitive to changes in financial conditions.

Differences in the impact of an adverse financial shock on euro area industrial production between financial states
Chart 1 – Differences in the impact of an adverse financial shock on euro area industrial production between financial states Note: Impulse responses of industrial production to the financial shock in healthy and fragile financial states. The size of the financial shock is the same in both cases. The dotted line shows the median and solid lines are 68% probability intervals.

By Guy Levy-Rueff

The public debt ratios of France and Germany (as a % of GDP) were similar in the early 2000s. Since 2010, the ratio has fallen sharply in Germany, but has continued to rise in France. Using a simple model, we show that the economic and financial context is now favourable to triggering a lasting reduction in France's public debt, provided that efforts to curb public spending are stepped up.

Public debt as a % of GDP in France and Germany under different scenarios
Chart 1: Public debt as a % of GDP in France and Germany under different scenarios Sources: Eurostat for the past, BdF calculations for the future

By Emmanuelle Politronacci, Elodie Ninlias, Enda Palazzeschi, Ghjuvanni Torre

Within a monetary area, the quantity of banknotes circulating in a given Member State is unknown as banknotes move back and forth across borders and cannot be tracked. There are various estimates but these have the drawback of varying by up to a factor of three. But the issuance of the new series of euro banknotes, combined with surveys, enable these figures to be more specific. Only 10% of the banknotes issued in France are apparently used for transaction purposes in the country.

Widely differing estimates of the value of banknotes in circulation, all denomination included
Chart 1: Widely differing estimates of the value of banknotes in circulation, all denominations included (2015) Source: BdF, based on Eurosystem’s Currency Information System data

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