EXCLUSIVE: French Treasury’s Bénassy-Quéré: Recruitment and Supply Constraints May Be Easing
29 November 2021
By David Barwick – FRANKFURT (Econostream) – The recruitment and supply difficulties affecting French economic growth may already be starting to dissipate somewhat, according to French Treasury Chief Economist Agnès Bénassy-Quéré.
In an interview last week with Econostream, Bénassy-Quéré said that recent, stronger-than-expected French growth should stand up to closer inspection, and expressed optimism about the domestic economic outlook.
Supply side constraints and recruitment difficulties in France are currently ‘only slightly worse’ than they were pre-crisis, she said, and distinctly less severe than in some other euro area countries like Germany or the Netherlands.
‘So the situation is not desperate on the supply side, and some surveys show recruitment and supply constraints easing already’, she said. Recruitment difficulties in particular ‘depend very much on the sector’, she added. ‘I think a large part of it is temporary, related to the stock-flow adjustment.’
Referring to the 3% quarterly GDP growth registered by France in 3Q, Bénassy-Quéré observed that both this and employment developments constituted positive surprises, ‘which makes me think that we are not going to revise everything downward.’
The ‘big question’, she said, was how close the French economy was to its potential. Depending on the output gap at the end of this year, 2021 growth, which the French government currently pegs at around 6.25%, could be revised up, and 2022, now projected at 4%, down, she said.
‘We think we will be on average slightly above potential output in 2022, but we have pencilled in a fall in potential output by 1.75% compared to the pre-crisis trend’, she said. ‘It may be less than that, given that labour participation rates are now exceeding pre-crisis levels, and corporate investment is vigorous.
Stagflation was not a worry, she made clear. There are reasons to expect robust consumption through 2022, she said. ‘Investment is increasingly dynamic, and exports are going to pick up’, she added. ‘Hence higher inflation is mostly a result of robust demand.’
Although the pandemic was clearly not over, ‘we are quite confident for the economy for two reasons’, she said. ‘First, each wave has had a lower economic cost. We have learned how to deal with it and continue producing, consuming and investing. The second reason is that increased vaccination is reducing the severity of infections and thus the pressure on hospitals.’
As for inflation, Bénassy-Quéré cautiously downplayed fears, arguing that the structural factors leading to low inflation remain in place, and that there had so far been ‘no acceleration of wages.’ Indeed, she said, inflation is high now to a large extent because it had been too low.
‘The key question is whether we can stabilise around 2%, but I think Europe is quite different from the US, where you really see inflation picking up in all sectors’, she said. ‘That’s also true in the UK, but continental Europe is different. Even in Germany, we have hardly seen wage growth so far.’
An eventual reduction of asset purchases by the European Central Bank was not a concern for France, she said, pointing to strong demand for safe assets such as French sovereign debt and to the average maturity of French debt of over eight years.