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Flash Economics Summary: Weakness of French Manufacturing Industry

Core Content

The French manufacturing industry is experiencing a notable decline, as evidenced by several key indicators:

• Declining production capacity (Chart 1)
• Loss of export market share (Chart 2)
• Growing external deficit (Chart 3)
• Low weight of industry in the economy (Chart 4)

These trends suggest a structural weakness in the sector, which is attributed to multiple factors.

Main Factors Explaining the Weakness

1. Recruitment and Skills Problem

• Labour force skills: France ranks low in terms of skills, as shown by the PIAAC survey (Table 1), with an overall score of 258.2 in 2016.
• Enrolment in higher education: A significant portion of students in France pursue fields such as law, arts, and economics, while fewer opt for sciences and technology (Table 2).
• Income distribution: The stable trend in income distribution within the industry suggests that there is no significant wage distortion that would drive a recruitment crisis.

2. Delay in Modernising Capital

• Low automation levels: The stock of industrial robots per 100 jobs in manufacturing is much lower in France compared to leading industrial nations (Table 3).
• Corporate investment: Investment in new technologies is limited, as shown in Chart 6, which indicates low levels of innovation and modernisation.
• Productivity gap: Empirical studies show that few companies in France are achieving rapid productivity growth, and most are lagging behind the technology frontier.

3. High Production Costs

• Unit labour costs: French manufacturing unit labour costs are higher than those in Italy and Spain, which have similar levels of product sophistication (Chart 7).
• Price elasticity: France's price elasticity of exports is 0.7, which is higher than Germany's 0.3, suggesting that French manufacturing is less competitive in terms of cost efficiency.

4. Limited Industrial Sectors Meeting Demand

• Upmarket sectors: Only three sectors—aeronautics/space, luxury goods, and pharmaceuticals—show significant external surpluses (Chart 8).
• Overall industrial demand: When excluding these sectors, the manufacturing industry appears to be struggling to meet demand (Chart 9).

Key Takeaways

• The French manufacturing industry faces multiple challenges, including low productivity, limited technological modernisation, high costs, and insufficient skilled workforce.
• The decline in production capacity and export market shares has led to a growing external deficit and a reduced share of the economy.
• While recruitment and skills are often cited as potential issues, the stable income distribution suggests this is not the primary factor.
• The delay in capital modernisation and low investment in new technologies are significant contributors to the sector's underperformance.
• High production costs reduce the competitiveness of French manufacturing, especially compared to Germany.
• Only a few high-value sectors are able to maintain a surplus, highlighting the industry's limited capacity to meet global demand.

Conclusion

The weakness of the French manufacturing industry is multifaceted, involving structural issues in recruitment, technological modernisation, and cost competitiveness. Addressing these challenges will require long-term investment and policy changes to improve the sector's performance and sustainability.

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