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Fall In French Business Confidence

James Boston
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The French Statistics & Economics Institute, INSEE, has just released an update to the countries Business Confidence indicator. The July version of this metric is now reading at 97, this is in comparison to the June figure of 98 and markets had not expected any deviation from this number.

The head of the French business association has recently called for an end to the governments 75% tax rate on earnings above €100,000 and for the 35 hour working week to be extended, these practices it is claimed make French companies uncompetitive. Ironically these practices make France one of the most difficult countries in Europe in which to be an Entrepreneur.

The socialist government of Francois Hollande has been warned by both the EU and the French fiscal council that growth projections of 1% this year look to be too high, as does the forecast of 1.7% for 2015 GDP expansion. The governments policy over the last two years has been to reduce the deficit by imposing tax increases, this has directly contributed to a 3% increase in taxation income but at the expense of a reduction in private investment in the economy.

The appointment of a new, more centrist, Prime Minister by Francoise Holland has opened the door to a tempering of the tax and spend policies that are robbing France of economic growth. Already on the table is a promised cut of 6% in employment taxes, a move that will be welcomed by business but one that falls short of what is required to make France a business friendly environment. What this move does achieve however is that it serves as a signal that a turning point has been reached and that economic reforms will take place albeit at a glacial pace. The fact that evidence of reform is present may make France’s application to the EU for an extension of it’s 3% deficit target to 2015 more likely to receive approval.

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