Payment duration in France remained above 60 days

With 0.6% GDP growth in the fourth quarter, France showed a surprisingly healthy economic performance, benefiting mainly from a surge in household consumption and inventory changes both up 0.9%. According to the French Statistics Office, INSEE, new orders across the board increased 4.7% compared to the previous quarter, driven by orders in the automotive sector [+10.2%] and rising demand from abroad in December 2009 [+19.5%]. That said, manufacturing production levelled off with a 0.1% increase in the last quarter.

For the whole of 2009, however, GDP contracted 2.2%, with total production down 3.1%, gross fixed capital formation down 6.9% and exports down 11.2%, all registering record declines. The budget deficit reached almost 8% of GDP and public debt will stand at 77% of GDP, compared to 67% in 2008.

French companies and consumers have both suffered from limited access to bank loans because of the crisis. In the first nine months of 2009, the overall amount of bank credit provided to consumers and businesses decreased 24% year-on-year, a credit gap of around 80 billion Euros. That said, in the last quarter of 2009 Crédito y Caución noted a slight rebound in credit issuance, with a 2.6% increase in the amount of loans granted. Consumer and real estate credits benefited most from this positive trend, with 5.6% and 6.4% increases respectively, while corporate credit saw a small increase of 0.9%. This positive trend needs to continue over the early months of 2010, but it already signals that France should avoid a massive credit crunch. Nevertheless, the negligible increase in short-term bank credit - up just 0.44% in the last quarter of 2009 - is a warning that companies will face difficulties in financing their growth and working capital requirements in the coming months.

On average, payment duration remained above 60 days in 2009, but did decrease, partly due to the Modernisation of Law of Economy [Loi de modernisation de l´economie], which aims to bring down payment terms to 45 days [end of month] or 60 days from invoicing date. Manufacturing in general has profited from this law, but it has had no real impact on retail, and, in contrast, the average payment duration in the construction industry has risen by 8 days.

For the whole of 2009, corporate insolvencies increased 10% - to 56,400 - with manufacturing, real estate, transport, hotels and catering the main victims [up to 25% increase], while food, wholesale and retail were less affected, with a lower than 10% increase. In the context of company size, smaller businesses, with 2 to 200 employees, suffered a 50% increase in insolvency, with those employing between 50 and 100 registering a rise of more than 60%.

Decreasing insolvencies in 2010

At the end of January, the IMF revised its forecast for French GDP growth in 2010 upwards to 1.4%. Corporate investments will remain low, expected to increase only 2.6% in 2010. Private consumption may decrease slightly at the beginning of the year, as a result of lower state subsidies and the gradual phasing out of the car scrappage scheme.

The agriculture, food and pharmaceutical industries have performed relatively well during the crisis, with a forecast of stability with little growth. After massive destocking and production contraction in the first half of 2009, the metallurgy, chemicals and plastics industries should recover and register an increase in turnover of 10% in 2010 compared to last year. However, forecasts for the automotive and construction sectors remain rather pessimistic, with an expected decline in automotive sales of 8%, due to the end of public subsidies, and an expected 7% decrease of new housing sites. Textile and clothing remain in a poor state, with an expected 10% turnover decrease.

In January 2010, the Expected Default Frequency [EDF] indicator in France fell 8 basis points - to 77 - continuing its monthly decrease since November 2009 and reaching its lowest level since September 2008. Crédito y Caución forecast a 5% decrease in overall corporate insolvency levels in 2010.