La détente à mi-parcours

Abstract

Balancing of economic growth of the major developed countries continued during the first half of 1989. The slowdown of US activity permitted the relaxing of capacity tensions and labour constraints. Falling prices of raw material in the spring reduced the theat of inflation. Growth was steady in Europe and Japan, bringing equipment to near full capacity. The resulting output gap with the United States did not threaten the strength of the dollar, which was fed by the still cautious monetary stance of the Federal reserve and the buoyancy of the bond market. The domestic demand differentials and exchange rate movements fostered both the reduction of the American external trade deficit and the Japanese surplus. By contrast, Germany offset its reduced bilateral surplus vis à vis the United States with increased ones vis à vis its European partners. Imports from developing countries were curbed during this half-year, by a slackened activity in Asia and enduring economic stagnation in Africa and Latin America. The implementation of the reinforced debt strategy (Brady Scheme) will not significantly enhance the demand of highly indebted countries until late 1990. In 1990, the upswing of imports from OPEC countries will nevertheless counterbalance these trends. More restrictive monetary policies in Europe and Japan, and the soft landing of the American economy, will bring about a dollar depreciation in 1990. The increased competitiveness of American supply will thus cushion the impact on it of a less dynamic internal market. But adverse terms of trade will limit the reduction of external imbalances. Inflationary pressures will be mastered at the cost of less brisk demand. The existing gap with the United States will allow for an improved ratio of exports to imports in real terms, and a smaller current account deficit as a percentage of GDP. Like other developed economies, France has experienced strong growth. Production capacities are more and more saturated. The imbalance between supply and demand of qualified workers leads simultaneously to labour shortages and to still high unemployment. In order to alleviate these tensions, companies will try to develop their facilities through new investment and an increased use of existing equipment. Investment outlays should not be tempered, to permit potential output to be in line with actual growth, i. e. 3 % for GDP and around 3,5 % for industrial production. Neither worsening nor easing of tensions would presumably occur. The business sector is expected to create as many jobs this year as last, then to slow down its hiring in 1990. During the recovery part of the cycle, productivity increased strongly. 1990 would show a return to the medium term trend. The unemployment rate would be stabilized, job creations matching the rise of the labourforce and a less intensive social treatment. The progress of real income will rest increasingly on wages. This stems from higher employment and individual wages. Two kinds of pressures have emerged in the private sector : those emerging from employees operating in highly saturated branches, and those from qualified people most sought by employers. Private consumption will be somewhat impeded by the servicing of the consumer debt. Some slowdown of home purchases could also contribute to a slight rise in the financial saving rate. Given that foreign production facilities are at as high a level as in France, we do not expect an increasing rate of import penetration beyond the medium term trend. The reduction in French market shares should also cease. The industrial trade deficit may still worsen this year, then level off. In spite of an increased trade deficit, the current account deficit would remain under half a percentage point of GDP. The price rise would be curbed next year. Less imported inflation and additional VAT rates reductions will dominate the increase of unit labour costs.