Friday 4th September 2015
NEWS TICKER, THURSDAY, September 3rd: The Straits Times Index (STI) ended 28.3 points or 0.98% higher to 2906.43, taking the year-to-date performance to -13.63%. The top active stocks today were SingTel, which gained 0.82%, DBS, which gained 0.80%, UOB, which gained 1.40%, OCBC Bank, which gained1.13% and CapitaLand, with a 0.36%advance. The FTSE ST Mid Cap Index gained 0.55%, while the FTSE ST Small Cap Index rose 0.24% - Madrid City Hall announced it would dedicate €10m out of its 2016 budget to a "welcome plan for refugees" to include housing, integration, psychological support and legal aid, City Hall spokeswoman Rita Maestre (Ahora Madrid) said during a press conference on Thursday. Maestre said a budget had been decided upon but that specific numbers had not: "We want to welcome all those who are fleeing from war", adding that given their situation "a permanent housing solution" would be needed in the city. The Mayor of the Spanish capital, Manuela Carmena, said on Wednesday that a decision would be taken at the city government meeting today: "The city of the hug must, of course, be ready to welcome refugees" - The European Bank for Reconstruction and Development (EBRD) is joining international efforts to clean up Tunisia’s Lake Bizerte with a €20m loan and technical assistance to support the expansion and rehabilitation of the sewerage network of the Bizerte region and the rehabilitation of three wastewater treatment plants located near the lake. The EBRD’s investment is part of an integrated environmental programme aimed at de-polluting Lake Bizerte and reducing sources of pollution through investments in wastewater, solid waste and industrial effluents. This programme is labelled by the Union for the Mediterranean and is part of the Horizon 2020 Initiative, which aims to de-pollute the Mediterranean by the year 2020. The European Investment Bank is providing a €40 million sovereign loan to the programme while the European Union Neighbourhood Investment Facility is contributing a €15m grant for both capital expenditure and technical cooperation - Analysis of illicit financial flows (IFFs) by Global Financial Integrity (GFI) shows that over the period 2003-2012 the global volume of IFFs grew by more than 9% annually (. In 2012 (the most recent year for which data are available), illicit flows were estimated at close to $1trn. In response to this unfettered surge in illicit capital leaving developing nations, the UN has endorsed target 16.4 in the Sustainable Development Goals (SDGs), which commits the global community to “significantly reduce” IFFs by 2030. This UN action “represents an historic moment in development policy given that it is the first time the international community has recognized the illicit flows problem and pledged to address it,” says GFI President Raymond Baker - US Secretary of Commerce Penny Pritzker named Eduardo Leite, Chairman of the Executive Committee of Baker & McKenzie LLP, as the new chair of the US section of the US-Brazil CEO Forum. “Mr. Leite has served on the U.S. section of the CEO Forum for several years, and I am pleased that he has agreed to serve as Chairman,” said Secretary Pritzker. The new US section chair was named after the former chair, Ms. Patricia Woertz, Chairman of the Board of Directors of Archer Daniels Midland Company, submitted her resignation from the role. However, Woertz will remain a member of the U.S.-Brazil CEO Forum, and Leite will complete the current three-year term, which ends on August 13th 2016 - MarketAxess Holdings Inc. (Nasdaq:MKTX), the operator of a leading electronic trading platform for fixed-income securities, and the provider of market data and post-trade services for the global fixed-income markets, today announced total monthly trading volume for August 2015 of $75.5 billion, consisting of $43.7 billion in U.S. high-grade volume, $26.7bn in other credit volume, and $5.1 billion in liquid products volume. MarketAxess is providing both the reported and adjusted estimated US high-grade TRACE volumes on its website. The Company believes that the adjusted estimated volumes provide a more accurate comparison to prior period reporting.

Latest Video

Blog

The European Review

By Patrick Artus, chief economist at Natixis

France’s industrial crisis: predictable and set to last

Friday, 03 August 2012 Written by 
France’s industrial crisis: predictable and set to last France’s industrial sector is in the midst of a steadily worsening crisis. There has been a decline in production, employment and productive investment, the external deficit remains significant, and export market shares are declining rapidly. We would argue that this situation was foreseeable, particularly if we add up issues with supply, domestic and external demand, and the impact of the eurozone crisis. Unfortunately, not a lot can be done about the weakness of demand, and the remedies to the supply problem are difficult to implement rapidly. http://www.ftseglobalmarkets.com/

France’s industrial sector is in the midst of a steadily worsening crisis. There has been a decline in production, employment and productive investment, the external deficit remains significant, and export market shares are declining rapidly.

We would argue that this situation was foreseeable, particularly if we add up issues with supply, domestic and external demand, and the impact of the eurozone crisis. Unfortunately, not a lot can be done about the weakness of demand, and the remedies to the supply problem are difficult to implement rapidly.

Let’s go through these issues, their causes and their implications.

Cause no. 1: The supply problem



Supply conditions for goods and services continue to deteriorate in France. The low profitability of companies discourages investment hence the production capacity of French industry is on the decline.

Since 2001, French industry sales prices have been falling relative to unit wage costs. Such falls reflect the excessive level of unit wage costs compared to the sophistication of industrial production in France. The downmarket nature of French industrial production prevents an increase in its selling prices, because of the high level of the price elasticity of demand for industrial products made in France: 0.9 versus 0.3 in Germany.

However, the rise in the unit wage cost – relative to selling prices – does not come as a result of the trend in productivity, but what has been happening to wages. This is because the level of costs is pushed up by the level of employers’ welfare contributions.

The subsequent fall in French industry’s profitability is substantial, reducing its capacity to invest and create jobs. This leads to the off-shoring of production capacity to countries where industrial profitability is higher, thereby weakening industry financially and threatening it with a serious crisis in the event of a recession and falling demand.

Cause no. 2: The demand problem

Between 2011 and 2012, French industry suffered from the weakness of both domestic and external demand. This resulted in a lower capacity utilisation rate than normal, which makes the problem of low profitability even more detrimental. And the decline in demand may deteriorate further if there is a fall in real wage incomes and government expenditure.

Cause no. 3: The euro-zone crisis

The eurozone crisis has two negative effects on French industry:

  1. it weakens demand and therefore imports in the eurozone countries that usually would have been France’s customers. This is significant because the eurozone accounts for 46% of French exports – the United Kingdom, which is also mired in a recession, accounts for 6%;
  2. it reduces domestic demand and capacity utilisation rates in Spain and Portugal and persuades industrial companies in these countries to turn to exports. As wage costs are lower in these countries, there is an increase in the competition that has a direct impact on French industry. France’s export market share tends to decline, whereas those of PortugalSpain and Ireland have recovered.

Remedies are very difficult to implement

Of the three issues mentioned, weakness of demand and the effects of the eurozone crisis cannot be controlled, particularly in a situation where there is private-sector deleveraging and a reduction in fiscal deficits. The question for French industry is therefore which remedies can be implemented on the supply side? We have put together the following list of possible measures:

 

  • an improvement in the sophistication of industrial production and in the differentiation of products, which will require innovation, investments, and marketing;
  • increased geographical diversification in companies' sales to increase the weight of emerging countries, which is currently quite low in France;
  • a major reform of the financing of social welfare in France to reduce the weight of welfare contributions paid by companies;
  • a fall in the hourly labour cost, either through a fall in the per capita wage, or through an increase in the number of hours worked (which is obviously a source of conflict).

 

However, these measures are all very difficult to implement rapidly.

It is also important to understand the major fragility of companies that are not very profitable (i.e. they have a shortfall in supply) when they are faced with a significant and lasting decline in demand.

Unfortunately, it looks as though this French industry crisis is not going to go away any time soon.

Patrick Artus

A graduate of Ecole Polytechnique, of Ecole Nationale de la Statistique et de l'Adminstration Economique and of Institut d'Etudes Politiques de Paris, Patrick Artus is today the Chief Economist at Natixis. He began his career in 1975 where his work included economic forecasting and modelisation. He then worked at the Economics Department of the OECD (1980), before becoming Head of Research at the ENSAE. Thereafter, Patrick taught seminars on research at Paris Dauphine (1982) and was Professor at a number of Universities (including Dauphine, ENSAE, Centre des Hautes Etudes de l'Armement, Ecole Nationale des Ponts et Chaussées and HEC Lausanne).

Patrick is now Professor of Economics at University Paris I Panthéon-Sorbonne. He combines these responsibilities with his research work at Natixis. Patrick was awarded "Best Economist of the year 1996" by the "Nouvel Economiste", and today is a member of the council of economic advisors to the French Prime Minister. He is also a board member at Total and Ipsos.

Website: cib.natixis.com/research/economic.aspx

Related News

Related Articles

Related Blogs

Current Issue

Tweets by @DataLend

DataLend is a global securities finance market data provider covering 42,000+ unique securities globally with a total on-loan value of more than $1.8 trillion.

What do our tweets mean? See: http://bit.ly/18YlGjP