France: Economic recovery hasn't reached the labour market - ING

"The employment figures show the economic recovery hasn't reached the labour market. However, we expect things to turn a corner in the second half of 2018, bringing the unemployment rate back to 9%," ING economists argue.

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As employment is a lagging indicator of economic recovery, the current situation is not puzzling. The French recovery started at a slow pace in 2014, boosting private employment growth only very slowly. It took three years to go from no growth on average to 1.4% YoY so far in 2017. 

This rhythm is however still too low to trigger a fast decline in unemployment. However, with GDP growth accelerating towards 2.0% in 2018 and supportive labour market reforms, employment growth should accelerate further in the second half of next year. This should allow for unemployment to decrease to 9%.

The political context will remain supportive of the labour market reform materialising in 2018 and tax cuts on low wages will stay on the menu for coming years. Finance Minister Le Maire recently suggested that this reduction of French labour costs through tax cuts could be extended to higher salaries (currently it is limited to 2.5 times the minimum wage).

Moreover, President Macron has pledged a large investment plan in training which aims at increasing the hiring rate of trained unemployed and broadening their number. We believe that these measures will push up hiring intentions which peaked in the service sector last March.