Amadeusz Juskowiak

France has little room for manoeuvre oecd says

French industry is failing to produce the goods its markets need and its loss of competitiveness has left the government little room for manoeuvre to reflate the economy the Organisation for Economic Cooperation and Development said

With gross domestic product likely to grow only 21 pct this year the same rate as last year unemployment could climb to 115 pct of the workforce by mid1988 from its present 109 pct it said in an annual review of the French economy

The report said the French economy was increasingly illadapted to demand selling goods at uncompetitive relative prices on both domestic and export markets

Frances poor export performance reflects a geographical bias in favour of markets less dynamic than the average AndA substantial loss of market shareIn the past 18 months it said

Pointing to a likely widening of the French trade deficit to around 29 billion dlrs this year from 24 billion in 1986 it warned that a further depreciation of the dollar against the franc could lead to a renewed loss of competitiveness relative not only to the United States but also to the newly industrialised countries

This could result in further major losses of market share particularly in the nonOECD area which accounts for almost a quarter of French exports it said

Until the competitive ability of industry improved the authorities would have little scope for macroeconomic manoeuvre even if the unemployment situation or the need to encourage a pickup in investment could require demand to grow more briskly it added

But rising unemployment could help to hold down wage demands contributing to a slowdown in inflation to around a two pct annual rate this year and early next the OECD said

Written mainly in December last year the report took no account of a rise in oil prices early in 1987 and a 09 pct surge in January consumer prices caused partly by the governments deregulation of service sector tariffs

We took a bet that the freeing of prices would not provoke runaway rises and it is not absolutely certain that bet has been lost one OECD official commented

OECD officials said the January data and a rise in oil prices above the 15 dlrs a barrel average assumed in the report indicated an upward revision in the inflation forecast to around 25 or three pct

The government last week revised its forecast up to between 24 and 25 pct from two pct against last years 21 pct

But the OECD backed the governments view that the underlying trend for inflation remained downwards this year with a slowdown in domestic costs taking over from last years fall in oil and commodity prices as the chief cause of disinflation

With French unit productivity costs now among the lowest in the OECD area the inflation differential between France and its main trading rival West Germany could fall to just one pct this year it said

On the other hand the report noted consumer prices for industrial goods and private services have been rising steeply as companies built up their profits

For the disinflationary process to continue and price competitiveness to become lastingly compatible with exchange rate stability it is essential that wage restraint continue it said