French Labor Reform and Economic Growth - FocusEconomics

The French economy has come under the spotlight again after disappointing GDP growth in the third quarter. Even the French government has now finally admitted that its 1.5% growth forecast for 2016 is overly optimistic, long after our analysts downgraded their forecasts. Ironically, one of many factors that has dragged on economic growth in France this year has been the ostensibly pro-growth labor reform introduced in the summer, or rather the strikes over it. These weighed on domestic demand earlier this year and will thereby play a part in penalizing France’s overall GDP growth in 2016. This calls for a closer look at the labor reform and what it means for French GDP growth going forward, particularly in a short-term perspective. Such a structural reform, if introduced in an already robust economic context, should have positive consequences for the economy almost from the outset. In the current environment of weak demand and constrained macroeconomic policy, however, the potential losses of the reform could well exceed the potential gains in the short-run, regardless of the eventual benefits that should hopefully win over in the medium- to long-term. http://www.focus-economics.com/blog/short-term-pain-before-long-term-gain-a-look-at-french-labor-reform-and-economic-growthRead less