L'investissement fuit le risque
Authors:   Département des diagnostics de l'OFCE, Sigogne Philippe , Fayolle Jacky , Baudchon Hélène , Chagny Odile , Falah Amel , Passet Olivier , Milewski Françoise , Chauvin Valérie , Péléraux Hervé 
Published: October 2008

Investment off risk

Département des diagnostics

World trade has benefited in 1994 from several expansionary factors

leading to a rate of growth of about 10 %. These factors will not occur

with the same vigour in 1995 and 1996 :

— under the influence of monetary tightening already begun in 1994,

the American economy will experience a controlled but clear slowdown,

which will lead to a growth rate of under 2 % in 1996 ;

— the emerging industrialised countries whose external accounts are

worringly off balance, will seek to better control the growth of their

imports ;

— the weakness of the dollar during the next two years will put

strong pressure on competitivity in other regions of the world. Even if it

appreciates in 1996 from its very low current level, the dollar will do so

only moderately.

In the context of these evolutions, there are differences in the regional

perspectives. Japan shows great difficulties in making an endogenous

comeback from the last years of its recession. It succeeds only as public

stimulus continues. The needed rebuildings following the Kobe earth-

quake will play a great part in Japanese growth in 1995. Only in 1996 will

growth exceed an annual rhythm of 3 %, when private demand takes over

from the public stimulus.

In 1995, German growth will profit from the investment cycle engaged

by its European partners, and the latter will in turn profit from the

German economic strengthening. The German recovery, engaged in 1994

thanks to the reconstitution of inventories and the dynamism of exports,

will be led, in 1995, by households' consumption expenditures. Indeed,

the main result of wage negotiations will be to boost private consump-

tion. German growth will reach 3,7 % in 1995 (3,2 % for West-Germany).

During 1995, the German capacity utilisation rate will exceed its

« normal » level. The central bank will take this into account before

progressively, by 1996, tightening its monetary policy. The pace of Ger-

man growth will then fall back close to its potential path and record an

average annual rate of 3,5 % (3 % for the western Lander). European

countries will be more constrained by German monetary tightening.

In France, the economic recovery has asserted itself : manufacturing

orders and production remain at a high level. Investment has actually

picked up, stocks have been readjusted, foreign demand has been sus-

tained. If consumption was undermined by the shrinking car sector at the

end of the year, the producers of consumption goods are still optimistic

for the future. Housing seems to be the only sector to undergo an

unfavourable change of trend. At the time of this chronicle, the economic forecast for the French economy relies necessarily on its trend : whatever

its outcome, the presidential election will lead to major changes in

economic policy in mid-1995. The main uncertainties are threefold :

— the budgetary policy won't enable the government to meet the

public deficit criteria of the Maastricht Treaty (less than 3 % of the GDP)

before at least 1997 ;

— monetary policy will be dictated by the franc exchange rate. The

inversion of the yield curve which occurred in March 1995 would be

short-lived thanks to the reduction of the risk premium over German

rates ;

— the evolution of wages is also uncertain. The growth we anticipate

(hourly wages, overtime, bonuses) could be underestimated if the protest

movements of the spring develop further.

The current trend leads to a growth of GDP of 3,5 % in 1995 and 3 %

in 1996. Corporate investment will be the most dynamic component of

internal demand. Private consumption could gather strength as a conse-

quence of a slight increase in disposable income and a further decrease

in the saving rate. Consumption expenditures will benefit from low invest-

ment in housing. The rebuilding of inventories, begun in the middle of

1994, will still contribute strongly to growth in 1995, but much less so in

1996. The pick up of exports will be compensated by the more sustained

increase in imports.

At the end of 1996, GDP will not have reached the level of potential

GDP. The rate of capacity utilisation will remain under the saturation level

which would imply accelerating inflation and/or bigger market shares for

the imports on the internal market. The surplus of the commercial and

current account would be close to those in 1994. Unemployment will

recede only slightly, the increase in the number of jobs just being

sufficient to absorb the increase in the workforce.