France Economy Between 1983 and 1986

By | June 2, 2022

After the uncertainties of the early Eighties, starting from 1983 the economic policy of France has been aimed at the gradual reabsorption of internal and external imbalances, the reduction of the rate of inflation and the promotion of structural reforms. This action was characterized by the reduction of the inflation rate to the level prevailing in the main European partners, first of all in federal Germany; from the reorganization of the productive structure after the shocks from the seventies; some structural reforms aimed at improving the allocation of resources and reducing the unemployment rate in a lasting way. To this end, restrictive monetary and fiscal policies have been pursued, and greater flexibility of the labor market and wage moderation aimed, on the one hand, to reduce inflation, on the other, to restore the competitiveness of businesses, have been promoted.

According to topschoolsintheusa, the benefits of these policies have been slow to manifest. In the period 1983-86, income growth was, on average, equal to 1.6% per year, about half of what was recorded by the main industrial countries. In this period, the greatest contribution to GDP growth came from private consumption; in the presence of wage moderation this led to a significant decrease in the household saving rate. Despite the increase in profits, investments remained at depressed levels also due to high real interest rates and the prospects for modest growth in demand. On the other hand, the stability of the franc exchange rate within the European Monetary System (EMS) has caused a certain loss of competitiveness.

As a result, export performance was weak and France lost more than 10% of its market share between 1983 and 1987. In the presence of modest growth, the unemployment rate rose by two points percentages between 1982 and 1985. The most significant results of this first phase of adjustment were instead recorded in the disinflation process. Also thanks to the favorable trend of the external context, the inflation rate fell from 11.5% in 1982 to less than 3% in 1986.

Only since 1986 have the results of economic policy action become more evident. The gains in the terms of trade resulting from the fall in oil prices and the depreciation of the dollar against the French franc have led to an increase in corporate profits and a significant increase in domestic and foreign demand. This evolution has been accompanied by a series of measures aimed at improving the efficiency of the productive structure, reducing rigidities on the labor market, promoting the liberalization of prices and capital movements and modernizing the financial markets. There was also a reduction in direct taxes on individuals and legal entities equal, overall, to 1.3% of GDP in the two-year period 1986-87.

After a 1987 characterized by a deterioration in the current account and a slight increase in consumer prices, 1988 recorded a high rate of growth (4.5%), an inflation rate below 3% and a slight reduction in the public deficit in relation to GDP. The unemployment rate remained above 10% for the fourth consecutive year. In the two-year period 1989-90, the overall picture remained practically stable: in 1989 there was a certain slowdown in demand and a decrease in the incidence of the public deficit on GDP; however, inflation returned to a level above that of 1987 while unemployment fell slightly. In 1990, the slowdown in demand strengthened further, and inflation returned to 3% again; the unemployment rate,

The economic situation in 1991 was characterized by the negative influence exerted by the Gulf crisis. Both GDP and domestic demand grew by about 1% compared to 1990; industrial production increased by only 0.4% compared to + 1.4% the previous year; the unemployment rate returned to 9.4% (the same level as in 1989). By contrast, inflation was 3.1%, lower than Germany’s, and the current account deficit shrank to $ 6.3 billion from nearly $ 15 billion a year earlier. In the first months of 1992 there was a modest recovery in economic activity, inflation remained at the level of the previous year and the unemployment rate rose to around 10%. In the two-year period 1991-92, fiscal policies continued to be oriented towards rigor, providing for the freezing of various expenses and the increase in VAT for various goods (a measure partially offset by reductions in other taxes). Nonetheless, the share of the government deficit in GDP has increased. Monetary authorities continued to follow a line of defense of the franc in the EMS and a decisive fight against inflation and continued on the line of defense of the exchange also in September 1992, when the strong tensions that occurred on the European currency markets also affected the French franc.

France Economy