Trends in 2010-2011 and expectations for 2012

The 2010-2011 period is effectively a continuation of the trend observed in 2009. The impact of the crisis is less evident, and in some industries a recovery is beginning. However, this resumption of activity is not sufficient to compensate for the contraction in 2009.

According to a report published by the French central bank (Direction des enterprises, 2010), it may be noted that the modest recovery thus observed differed according to firm size. For instance, in 2010 the growth in turnover is higher for large companies (7.0%) than companies of intermediate size (ETIs)24 (4.6%) and SMEs (3.5%). A look at the available data for 2011 (interim reports of listed companies, macro-economic indicators, etc.), shows that the slight positive trend lasted only over the first half of 2011 but declined in the second half. The consequences of the crisis depend also upon the activity. The growth is strong in manufacturing industry, after the severe adjustment which occurred in 2009. But conversely, turnover remained virtually unchanged in construction. In 2010, foreign sales increased by 10%, regardless of the companies size. The sales by subsidiaries located outside France continued to grow at a fast rate between 2009 and 2010.

The trend in value added follows roughly the same path as in annual turnover. The decrease observed in 2009 was limited by the fall in prices of raw materials; 2010 marks the start of an increase, which, however, differs significantly according to firms’ size. The increase is very pronounced in the large companies (7.9%) and manufacturing industry (9.3%). Unlike the previous year, value added is supported by an increase in inventories. As for purchases of goods and raw materials, their cost increases in 2010 but this goes hand-in-hand with destocking. Consequently, the companies could limit the rise of their intermediate consumptions, thus creating more value added.

After the decline in 2009, the investment continues to decrease in 2010, but at a slower rate. The decline continues to be significant in SMEs and large companies. On the whole, the ETIs and companies operating in manufacturing industry are the only ones to generate an increased flow of investment to 2009. The year 2011 was marked by a change in direction and conflicting trends according to firms’ size. While the total investment still grew in the first half, this trend was interrupted in October. The fall of investment was especially strong in SMEs, mainly because of entrepreneurs’ negative expectations, whereas intermediate-sized companies and large groups continued to make significant efforts to invest.

24 ETIs (‘‘enterprises de taille interme´diaire’’) employ fewer than 5.000 staff and have net sales of

The slight improvement of the macro-economic scenario in 2010-2011, the decrease in operating costs (mainly labour costs), the tax reform and the slowdown in investment have produced cumulative effects leading to an increase in profitability. Compared to 2009, the average GOM as percentage of net sales improved by three points, to reach 25.7%. This increase is very marked in the large companies (up 5.4 points, to 28.8%) but is more limited for SMEs and intermediate-sized companies (up 1.3 points only). Although significant, the improvement in profitability in 2010 does not compensate for the decrease in 2008 and 2009. In SMEs and ETIs, the GOM as percentage of net sales was respectively equal to 22.2% and 25.1%, which is less than the levels observed in 2007 (1.9 and 1.4 points respectively).

The low profitability of SMEs means they may be highly dependent on credit. This is unlikely to change in the short term, as alternative sources of funding such as venture capital or the SME equities market are still scarce. Bank lending surveys conducted by the Bank of France show that credit conditions did indeed tighten in the last quarter of 2011, before stabilizing in early 2012. Short-term cash facilities for small or very small enterprises were particularly affected. Meanwhile, demand for loans has continued to decline. Credit growth can therefore be expected to slow in the next few months, mainly because of the subdued demand.

However, some regional differences also emerge (Trendeo Observer, 2012). Since January 2009, industrial France of the Paris basin and North East has been struck by the crisis. The northern part of the country benefits from an automotive industry which has fired less employees than elsewhere, and from a strong dynamism in the retail trade driven by the local international business groups. The Midi-Pyre´ne´es region and, to a lesser extent, the Pays de la Loire, profit from activity in the aeronautics industry, one of the rare industrial sectors which has continued to create jobs since 2009. Conversely, five regions have to face increased difficulties mainly because of the dominant position of some industries severely hit by the crisis. This is the case for all the industrial sectors (automotive, chemistry and pharmacy) in the Paris area, in which a significant number of companies have implemented redundancy plans. This deteriorating scenario affects sub-contractors, the majority of which employ fewer than 500 people. As a result, the global performance of MSEs tends to deteriorate, whereas the number of insolvencies increases. Four other regions also show substantial job losses – Alsace, Lorraine, Franche Comte´ and Picardy – which all have in common a high proportion of companies operating in automotive and metallic goods manufacturing.

The expectations for 2012 are relatively pessimistic, as the economy was helped by a particular set of circumstances in the fourth quarter of 2011, which are almost impossible to replicate. Indeed, if the global results of the French economy were better than expected, this was due to a high level of investments, particularly by non-financial companies, and an increase in exports. As mentioned by the European Commission in the Commission Staff Working Document (2012b), part of the surge in investment can be linked to firms anticipating the higher taxation of cars, which came into force on January 2012. Exports benefited from exceptional sales in the aeronautical sector. The rise in energy consumption in February 2012, on the back of colder weather than usual, seems to have sustained private consumption.