Corporate insolvencies in France will decrease 5% in 2011

Credito y Caución estimates that corporate insolvencies in France will decrease by 5% year-on-year - to 49,000 cases - in 2011. However, this figure is still high above pre-crisis levels.
Analisis Credito y Caución
Madrid - 27-jun-2011

In 2010 corporate insolvencies in France decreased 4% year-on-year to 51,600 cases, after an increase of 19.6% in 2008 and 4.9% in 2009. Crédito y Caución estimates that business failures will further decrease by 5% year-on-year in 2011.

The median Expected Default Frequency for French listed companies recorded a minor increase by 1 basis point in March 2011 compared to February. However, since December 2010 the French median EDF has dropped further 12 to 41 basis points. This constitutes a 31 basis points reduction year-on-year, and a lower level than in August 2010, i.e. before the credit crisis started.

According to the French National Institute of Statistics and Economic Studies [INSEE], real GDP growth improved again in Q4 of 2010, by 0.4% year-on-year and by 1.4% on the previous quarter. This increase in growth can be attributed primarily to higher household consumption: increased energy consumption due to a very cold winter and car risen car purchases before the end of a car scrappape scheme in January 2011. Total domestic demand, excluding inventory changes, contributed 0.6 points to output growth, after 0.4% in the third quarter. For the whole of 2010 GDP rose 1.5%, and is forecast to grow 1.6% in 2011.

In 2010 exports of goods and services increased by 10.1% after a sharp drop in 2009 of -12.2%, while  imports of rose again by 7.8% [2009, -10.6%]. According to INSEE, the foreign trade balance turned positively again in the last quarter of 2010 after decreases in Q2 and Q3. Overall, net foreign trade accounted for 0.4% of GDP growth in 2010.

Private consumption increased 1.7% in 2010 after 0.6% in 2009. Household consumption expenditure accelerated in Q4 of 2010 [+0.9%, after +0.5% in Q3]. Household consumption of manufactured goods increased 1.2% in Q1 of 2011 after a 1.8% increase in Q4 of 2010. According to INSEE, expenditures in household durables increased 2.6% in Q1 of 2011 [0.6% in Q4 of 2010], car purchases 2.3% [14.5%], and expenditures in textile 0.8% [-0.8%].

However, consumer confidence has declined somewhat in the January-Aril 2011 period. Compared to March 2011, consumers´ expectations of the general economic situation, the personal financial situation and inflation development are slightly more pessimistic. Expectations of their own financial situation and of the future economic situation remain below their long-term average.

Consumption growth will be lower this year as stimulus measures have expired and households´ purchasing power decreases [it already slowed down in Q4 of 2010], mainly due to rising consumer prices. In March 2011 the consumer price index increased 0.8% on the previous month and 2.0% year-on-year [+1.7% in February], mainly due to higher energy prices, which rose 15.3% year-on-year. According to the IMF consumer prices will rise to 2.1% in 2011, after 1.7% last year.

Business confidence in the manufacturing sector has recovered comprehensively since mid-2009 and has increased further in recent months. According to INSEE, besides manufacturing the business climate is particularly favourable in the services sector.

Manufacturing output continued to increase into 2011. According to INSEE, new orders received in industry increased 7.2% in the December 2010-February 2011 period on the previous quarter and 13.6% year-on-year while turnover increased 4.5% and 10.7% respectively.

According to an INSEE survey, business managers expect investments in the manufacturing industry to increase 14% year-on-year in 2011, after declines of 21% in 2009 and 2% in 2010. According to the Banque de France, cash positions of French industrial firms improved further to above pre-crisis levels in Q1 of 2011. However, gross operating profits remained unchanged and profit margins decreased slightly on the previous quarter. At the same time French industry’s capacity utilisation rate has continued to increase this year, but is still far below pre-crisis level.

Business confidence in the construction sector remains subdued, however, according to a Banque de France survey activity in building and civil engineering recovered in Q1 of 2011. Order books increased year-on-year, but the short-term outlook is still mixed mixed. Wholesale trade recorded an increase in volumes traded compared with the previous quarter, and further growth in activity is expected in the next couple of months.

As a consequence of the credit crisis and stimulus measures, government debt increased sharply to 78.1% of GDP in 2009 and to 84.3% in 2010. The IMF forecasts an additional increase to 87.6% of GDP for this year. However, according to the French Ministry of Finance the budget deficit increase was lower than expected in 2010 to 7% of GDP instead of 7.7%, due to higher tax revenues and more spending discipline. The government aims at reduce the deficit to 5.7% of GDP in 2011 and to 4% of GDP in 2012. Although the government has announced measures to reduce the budget deficit in the coming years, it is expected that France will not be able to meet the Maastricht deficit threshold of a maximum of 3% of GDP in the coming years.

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