Business Cycles Analysis; The outlook for real GDP growth

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Business Cycles Analysis; The outlook for real GDP growth

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Abstract

Nowadays, the real GDP growth seems to be the prevailing worry for every economy. We are going to analyze real GDP growth and employment in France in 2006-2007, in the context of the international economy. Our overall objective is to understand and to interpret growth forecasts for a given country (France), to understand and to analyze the elements contributing to real GDP growth.

To reach this aim, we will first study the international and national environments of the French economy, to judge whether the international and domestic contexts are favorable or unfavorable for the growth in French GDP growth, and for its constituent elements. We will then study the real economy to form a growth forecast. In the second part, we will study successively:

-Contributions to real GDP growth;
-Unemployment rates and capacity of utilization;
-Wages, Price, and Interest rates.

Finally and to conclude, we will try to find an alternative forecast scenario. The first scenario, which we will study in the first two parts, is based on the interpretation of data collected from the INSEE, the Ministry of Finance and sites of the Central Banks, that is to say the "official" sites.

Introduction
The environment
1. The international environment
2. The world's real growth
3. Crude oil prices
4. The exchange rates
The domestic environment
1. The Index of consumer confidence
2. Business expectations
3. Special factors
The real economy
1. Contributions to the real growth of GDP
2. Unemployment rates and capacity utilization
3. Wages, prices, interest rates
An alternative scenario: the OFCE site
1. The main differences between the two scenarios

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[...] Given the fact that the business climate is quite the same as in 2006, and the fact that long-term interest rates are still high, the INSEE expects a lower growth in investment. Besides, the aggregate demand is not expected to increase a lot. It is going to stabilize compared to 2006, and the external demand is going to decrease a little. Thus, the investment growth rate is going to decrease a little compared to 2006 (from 4.2 to 3.5 ) Fiscal policy in percentage Let's apply the IS-LM model to the French situation. [...]

[...] The real GDP growth would increase by in 2006, then by in 2007. The slowdown of consumption would be the main reason for such a weakening. The past tightening of the monetary policy, the less favorable developments on the property market than in the past, and the inflation acceleration would weigh on household consumption, causing a stop in the decrease in saving rate, which became negative over the recent period. With the slowing down of the economic growth, the American current account deficit would be broadly stabilized, but on a high level. [...]

[...] This can be prejudicial to the growth of French GDP The real economy Contributions to the real growth of GDP Contributions to real GDP table Components of Demand component x weight of component Firms Consumption In order to analyze the contribution of the households to the growth of the GDP, we will analyze certain key variables, such as the evolution of wages, of the purchasing power and the rate of saving. Evolution of wages and of the purchasing power In 2006, the average wages per capita (SMPT) increased by The evolution of the average wages in 2006 was even stronger than in 2005, when this last increased by The average wages per capita would seem to continue this tendency in 2007. [...]

[...] Over all balance of foreign trade: Source Insee On the other hand, interest rates remain higher than interest rates of other countries, and it becomes more interesting for the people of those countries to convert their funds into Euros, and therefore they invest in countries such as France An alternative scenario: the OFCE site The main differences between the two scenarios On comparing the international environment forecast by the INSEE, with the one forecast by the OFCE, we find some relevant trends shared by the two organisms: - The weakness of the American economic growth due to the crisis of the real estate market; - The economic growth of the zone maintains a very slow rhythm. [...]

[...] - Different economists have different theories to explain unemployment: Keynesian economics emphasizes unemployment resulting from insufficient effective demand for goods and services in the economy; Other economists describe a structural unemployment, with structural inefficiencies which are inherent in labor markets; The classical unemployment refers to rigidities imposed on the labor market from the outside, such as minimum wage laws, taxes, and other regulations that may discourage the hiring of workers; Some economists point to a frictional unemployment, when unemployment is largely due to voluntary choices by the unemployed; The technological unemployment is caused by the replacement of workers by machines or other advanced technology; To finish with, Marxist economists see unemployment as a structural fact helping to preserve business profitability and capitalism. [...]

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