Government stimulus plan: time to go on the offensive

Groupe BPCE economists provide their analysis of France Relance, a €100 billion two-year plan for ecological transition, competitiveness, and social and territorial cohesion.

Representing 4% of French GDP, this massive plan sets out to boost the momentum of economic recovery and support potential growth with a view to returning GDP to its late-2019 levels by 2022. This €100 billion stimulus plan also aims to redirect production facilities and enhance the attractiveness of the French regions. It is expected that 160,000 new jobs will be created by 2021, notably related to the green economy. A total of 30% of the funding included in the plan is earmarked for the ecological transition in order to decarbonize productive activities. This ambitious stimulus plan is founded on the strong assumption that the additional public deficit created by these measures – given that 80% of the plan is financed by public deficit, half of which is funded by the European Union – will be financed by enhanced growth between now and 2025. France Relance, which is fairly evenly balanced between measures designed to stimulate supply (60%) and demand (40%), nevertheless reserves a central place for the productive fabric and, more specifically; for VSE-SMEs and intermediate-sized enterprises with direct and indirect support measures and aid for modernization.

Focus on companies: direct and indirect support for companies plays an important role in this economic stimulus plan and sets out to create a favorable ecosystem for the productive fabric: a strengthening of companies’ equity capital to shore up their solvency and enable future investments; a sharp reduction in taxes levied on production and a program of future-oriented investment to enhance their competitiveness; support for their energy transition in order to sustain their growth by stimulating demand, support via the labor market and training programs to limit the loss of human capital, etc. Although all these measures seem useful for French companies, the effectiveness of some of them could be compromised by an over-long implementation period (time required for the validation of certain measures by the European Commission, time required to draw up and implement the various investment plans and equity reinforcement measures, etc.), or even by the difficulty in identifying concrete projects that correspond to the government’s strategic orientations.

Focus on housing: more a plan to support the government’s national low-carbon strategy than a housing stimulus plan per se, France Relance confirms the impetus given by the government over the past several years in favor of the energy transition and urban densification. The measures that really concern the recovery of the housing sector and construction industry have been postponed until the autumn when the finance bill for 2021 is scheduled for adoption.