Economic studies
France

France

Population 64.7 Million
GDP per capita 42,953 $US
A3
Country risk assessment
A1
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 2.3 1.8 1.5 -10.4
Inflation (yearly average, %) 1.2 2.1 1.3 0.7
Budget balance (% GDP) -2.8 -2.3 -3.0 -4.5
Current account balance (% GDP) -0.8 -0.6 -0.7 -0.4
Public debt (% GDP) 98.4 98.1 98.1 117.0

e): Estimate. (f): Forecast.

STRENGTHS

  • High-quality infrastructure and public services
  • Skilled and productive workforce, dynamic demographics
  • Powerful tourism industry
  • Competitive international groups (aerospace, energy, environment, pharmaceuticals, luxury, food, retail)
  • Global agricultural leader
  • High level of savings

WEAKNESSES

  • Too few exporting companies, loss of competitiveness and market share
  • Weakening level of product sophistication, insufficient focus on innovation
  • Low employment rate among young people and older workers
  • Room for more efficiency in public expenditure
  • High public debt
  • Growing private debt

Risk assessment

Activity falls to unprecedented levels in peace-time

As one of the countries most affected by the COVID-19 pandemic, with over 30,000 deaths by mid-August 2020 (10th worldwide in terms of deaths per million inhabitants), France is facing an economic crisis of unprecedented proportions. The halt of "non-essential" activities in the context of the lockdown implemented between 17 March and 11 May led to a 5.9% fall in GDP in the first quarter, followed by -13.8% in the second quarter. Despite the gradual recovery of economic activity in May and June following the progressive easing of restrictions, GDP remained 19% below its end-2019 level. In connection with the travel ban, household consumption fell (16% lower in the second quarter compared to the end of 2019), despite the introduction of a short-time work scheme that guaranteed 84% of employees' previous net pay, which benefited 8.8 million employees (or 45% of private employment) in April, at the height of the crisis. As household purchasing power declined less than consumption, the savings rate rose sharply (19.8% in the first quarter compared to 15% at the end of 2019). The use of these savings will depend on household confidence, itself conditioned by the change in the health situation in the second semester. The sword of Damocles, i.e. a resurgence of the epidemic, should lead to precautionary savings behaviour and slow the recovery. Moreover, despite measures aimed at relieving companies' cash flow during the crisis, such as the postponement (or even cancellation for some sectors) of social security contribution payments, the solidarity fund for VSEs and state-backed bank loans (SBL, EUR 110 billion granted in mid-August), investment has collapsed (26% lower in the second quarter compared to the end of 2019). The latter will recover slowly, in a very uncertain environment: at end-July, only 41% of SMEs expected to maintain their pre-crisis investment projects. With nearly 60% of SMEs planning to postpone or cancel their hiring plans, the unemployment rate will rise in the second half of the year. Like world trade, French trade has collapsed: in the second quarter, exports and imports were 30% and 22% below their end-2019 level, respectively. The rebound in trade flows will depend on the strength of the global economic recovery. While the agri-food and pharmaceuticals sectors have been resilient, transport, automotive and tourism will not return to their pre-crisis levels of activity until, at best, the end of 2021. Thanks to the suspension of the obligation to open insolvency proceedings (from 12 March to 23 August) following a suspension of payments, insolvencies fell by 39% in the first semester. However, they are expected to rise in the coming months and will be 16% higher in 2021 compared to 2019.

 

Support measures and falling revenues: public deficit soars

Given the scale of the economic crisis, the government presented three drafts amending finance laws for 2020. In June, the total amount for measures taken in response to the crisis was estimated at EUR 136 billion (5.6% of 2019 GDP). In addition to the short-term work scheme (EUR 31 billion, 1.3% of GDP), the solidarity fund for microentreprises (EUR 8 billion) and additional exceptional health expenditure (EUR 8 billion), the emergency support plans for the sectors most affected by the crisis have been added. These concern particularly: tourism (EUR 18 billion, of which one third are SBLs), aerospace (EUR 15 billion, of which EUR 7 billion of SBL for Air France-KLM) and the automotive industry (EUR 8 billion, of which EUR 5 billion of SBL for Renault). With revenues falling alongside activity, the public deficit will reach double-digit figures and public debt will rise to about 120% of GDP.

 

The current account deficit widened significantly in the first half of 2020 to exceed 3% of GDP. On the one hand, with exports falling more than imports, the balance of goods deficit worsened (3.2% of GDP vs. 1.9% in 2019). On the other hand, hampered by traffic restrictions, tourism receipts have fallen, reducing the surplus in services (0.2% of GDP vs. 0.9% last year). Over the year 2020 as a whole, the current account deficit is therefore expected to deteriorate and will be financed by debt or equity issuances subscribed by non-residents.

 

New Prime Minister following the municipal elections

In power since 2017, President Macron and his centre-liberal La République En Marche (LREM) Party enjoy a large majority in the National Assembly, with 304 seats out of 577. However, in the autumn of 2018, President Macron faced widespread popular protests spearheaded by the “yellow vest” movement. While the protests sputtered in the spring of 2019, partly because of government measures to increase household purchasing power, President Macron now looks to have limited room for manoeuvre to implement major reforms. For example, the pension reform initially planned for 2019, which involves scrapping special schemes and introducing alignment with the universal system, has been pushed back to the summer of 2020 in order to organise a nationwide consultation. Still, this sensitive reform generated major protests in December 2019. European elections in May 2019 showed that the main moderate opposition parties (Socialist Party on the left and Republicans on the right, which took 6% and 8% of the votes respectively), which have been rebuilding since 2017, continue to struggle. As a result, the main rival of the LREM (22%) is the far-right Rassemblement National (RN), which came out on top in the elections taking 23% of the votes. Six months on, polls indicated that the political landscape was still largely dominated by the LREM and the RN, with each taking 28% of the votes, compared with 10% for the other main parties.

 

Last updated: September 2020

Payment

Bank cards are now the most commonly-used form of payment in France, although cheques are still widely used. In value terms, cheques and transfers are still the most popular forms of payment.

If a cheque remains unpaid for more than 30 days from the date of first presentation, the beneficiary can immediately obtain an enforcement order (without need for further procedures or costs). This is based on a certificate of non-payment provided by the creditor’s bank, following a second unsuccessful attempt to present the cheque for payment and when the debtor has not provided proof of payment within 15 days of receipt of a formal notice to pay served by a bailiff (Article L.131‑73 of the Monetary and Financial Code).

Bills of exchange, a much less frequently used payment method, are steadily becoming rarer in terms of number of operations – although they remain important in terms of total value. Bills of exchange are still an attractive solution for companies, as they can be discounted or transferred and therefore provide a valuable source of short-term financing. Moreover, they can be used by creditors to pursue legal proceedings in respect of “exchange law” (droit cambiaire) and are particularly suitable for payment by instalments.

Bank transfers for domestic or international payments can be made via the SWIFT electronic network used by the French banking system. SWIFT offers a reliable platform for fast payments, but requires mutual confidence between suppliers and their customers. France is also part of the SEPA network.

Debt collection

Unless otherwise stated in the general sales conditions, or agreed between the parties, payment periods are set at thirty days from the date of receipt of goods or performance of services requested. Interest rates and conditions of application must be stipulated in the contract – otherwise the applicable interest rate is that applied by the European Central Bank in its most recent refinancing operations. Throughout the first half of the year in question, the rate applicable is that in force on January 1 and for the second half year in question, the rate applicable is that in force on July 1.

 

Amicable phase

During this phase, the creditor and the debtor try to reach an amicable solution via direct contact in order to avoid legal procedures. All documents signed between the parties (such as contracts and invoices) are analysed. Where possible, the debtor can be granted an extended time period to pay his debts, with the period’s length negotiated as part of the amicable settlement.

 

Legal proceedings

Order for payment (injonction de payer)

When a debt claim results from a contractual undertaking and is both liquid and undisputable, creditors can use the injunction-to-pay procedure (injonction de payer). This flexible system uses pre-printed forms and does not require the applicants to argue their case before a civil court (tribunal d’instance) or a competent commercial court (with jurisdiction over the district where the debtor’s registered offices are located). By using this procedure, creditors can rapidly obtain a court order which is then served by a bailiff. The defendant then has a period of one month in which to dispute the case.

 

Fast-track proceedings

Référé-provision provides creditors with a rapid means of debt collection. If the debtor is neither present nor represented during the hearing, a default judgment can be issued. The court then renders a decision, typically within seven to fourteen days (though same-day decisions are possible). The jurisdiction is limited to debts which cannot be materially contested. If serious questions arise over the extent of the debt, the summary judge has no jurisdiction to render a favourable decision. Judgments can be immediately executed, even if the debtor issues an appeal.

If a claim proves to be litigious, the judge ruled competent to preside (juge des référés) over urgent matters evaluates whether the claim is well-founded. If appropriate, the judge can subsequently decide to declare himself incompetent to rule on the case. Based on his assessment of whether the case is valid, he can then invite the plaintiff to seek a ruling through formal court procedures.

 

Ordinary proceedings

Formal procedures of this kind enable the validity of a claim to be recognised by the court. This is a relatively lengthy process which can last a year or more, due to the emphasis placed on the adversarial nature of proceedings and the numerous phases involved. These phases include the submission of supporting documents, written submissions from the litigants, the examination of evidence, various recesses for deliberations and, finally, the hearing for oral pleadings (audience de plaidoirie).

Proceedings are issued through a Writ of Summons (Assignation) which is served on the debtor 15 days before the first procedural hearing. During this hearing, the court sets a time period for the exchange of pleadings and discovery. Decisions rendered do not necessarily have the possibility of immediate execution. In order to be executed, they must first be served on the debtor. They are also subject to appeal.

Enforcement of a legal decision

Unless the court decision is temporarily enforceable, enforcement can only commence if no appeal is lodged within one month and must occur within ten years of notification of the court’s decision. Compulsory enforcement can be requested if the debtor does not comply with the judgment. Obligations to pay can be enforced through attachment (of bank accounts or assets) or through a third party which owes money to the debtor (garnishment).

France has adopted enforcement mechanisms for decisions rendered by other EU member countries. These mechanisms include the Payment Order under the European Enforcement Order. Decisions rendered by non-EU members can be recognised and enforced, provided that the issuing country is party to a bilateral or multilateral agreement with France. In the absence of an agreement, claimants are obliged to use the French exequatur procedure.

Insolvency proceedings

French insolvency law provides for six procedures to undertake restructuring or avoid insolvency. These are either assisted proceedings or proceedings controlled by the court.

Assisted proceedings

These can be either mandated ad hoc or via conciliation proceedings. Both are informal, amicable proceedings, where creditors cannot be forced into a restructuring agreement and the company’s management continues to run the business. These negotiations are governed by contractual law throughout their duration. The proceedings are conducted under the supervision of a court-appointed practitioner (a mandataire ad hoc, or a conciliator) in order to help the debtor reach an agreement with its creditors. Both of these types of proceedings are confidential but conciliation can eventually be made public if the debtor has the approval of the commercial court. Nevertheless, the terms and conditions of agreements remain confidential and can only be disclosed to signatory parties.

 

Court-Controlled proceedings

The four types of court-controlled proceedings are judicial reorganisation, judicial liquidation, sauvegarde, and Accelerated Financial Sauvegarde proceedings (AFS).

In all four proceedings, any pre-filed claims are automatically stayed. Creditors must file proof of their claims within two months of publication of the opening judgment, or four months for creditors located outside France. Debts which arise after proceedings commence are given priority over debts incurred beforehand. Certain types of transactions can be set aside by the court, if they were entered into by the debtor during a hardening period (before a judgment opening a judicial reorganisation or a judicial liquidation).

With Court-Controlled proceedings there can be variations in the extent of involvement of the court-appointed conciliator. The sauvegarde and AFS procedures are debtor-in-possession proceedings, but with judicial reorganisation, the court can decide whether to set aside the company’s managers. The role of management is particularly reduced in cases of judicial liquidation, as the debtor company usually ceases to conduct business. Nevertheless, the court can decide for a business to continue operating under a court-appointed liquidator.

Insolvency trends France
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