Present-day world economy appears to be facing some serious challenges in sustaining its past robust growth. The credit crunch in the United States of America, as well as the United States dollar decline and high oil prices represent massive threats for the world economic equilibrium.
With this in mind, the year 2008 looks uncertain in terms of global performance. Even though European economies have proved surprisingly resilient in the face on an American recession, France shows some difficulties to cope with this general slowdown.
In this dossier, we will try to understand what are the past, future and present-day factors responsible for the recent French economic situation. These elements can be found in both the international and domestic environment. In a second part we will present the analysis of the real and monetary fields.
In 2007, three main crises have hit the global economy. The biggest one is the U.S. subprime mortgage market that then spread over other markets. There is also the real-estate crisis, especially in the US and in the UK, involving a decline in residential investment and spreading over Europe and Asia markets too. The third one is the higher energy prices and weaker house prices that dampen consumption spending.
However, in 2007, the world GDP growth was 4.9 %, which is still good.
We are going to analyze whether those crises are likely to impact stronger the world economy in 2008.
The chart below shows the world economy growth since 1999 and it points out its slowdown since 2007. The Société Générale expects a dip in 2008.
[...] Indicative bibliography proposed by Oboulo.com frencheconomy.blogspot.com www.ciaonet.org/atlas/FR/Economy/5-year_summary/20081125_20205.html ec.europa.eu Appendices Determinants of I domestic demand Investment C & S Consumption - Saving Keynesian factor that Expected demand defines the impact of on investment (The demand accelerator) The expected demand is play in France? generate huge investments. Therefore we can say that the factor one does not play such an important role in France. disposable consumption is a stable income In France this effect is play in France? seen. This engenders all the questioning about purchasing power and the concern about inflation which is cancelling the wage increase in term of purchasing power. [...]
[...] The recent forecast for 2008 is 4,1%. Hereafter is the distribution of the GDP growth among the main industrialized countries. Source: http://groupe.socgen.com/html/eco/GB/tele/eco_a.pdf; March 2008. This table highlights the fact that the real GDP growth from the main industrialized countries is lower than the world GDP growth. When looking closer at it, we notice that it comes from the high growth of China or India. Price of crude oil Source: http://www.eurotrib.com/story/2008/3/12/143238/164; March 18th This chart represents the evolution of oil prices from 1971 to March 2008 in four currencies: dollars, euros, ECU and DEM (Deutsche Mark). [...]
[...] The forecast provided by INSEE (which is more recent) shows that wage growth is going to slow down during 2008 whereas the forecast provided by Crédit Agricole tends to be more optimistic. Nevertheless insofar as we have seen previously, the inflation rate would probably be very high during 2008. If we subtract the inflation rate to the wage growth we obtain negative figures with the INSEE forecast and with the Crédit Agricole which is quite worrying for the purchasing and so for the rest of the economy. [...]
[...] The INSEE forecast reveals a capacity utilization rate of 85% for 2007 and a forecast of for 2008. These figures show that French firms are ready to increase their productions if there is an increase in the demand in the short term which makes us think that it would not generate a huge inflation. The economy would remain stable so that the impact would be profitable. Moreover it points out that French firms are confident about the augmentation in the demand. [...]
[...] Experts think that in the long run, because economic activity is going to stay in the euro zone, the euros will depreciate and the euro exchange rate against the US dollar would stabilize around 1.25 Sum-up : the international environment context in 2008 World growth USA: Japan: EMU: World: Crude Oil Price Stay around $90-$100 Exchange rates Stronger US dollar : $ 1.55 Special factors Subprime crisis Financial crisis Higher energy prices 2 Domestic Environments Households expectations The French National Institute for statistics and economic studies (INSEE) is releasing every month a consumer confidence survey. [...]
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