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Three questions to understand France’s record trade deficit

Three questions to understand France’s record trade deficit
Written by madishthestylebar

This is a record that France would have done well without: the trade deficit for French goods reached 11.5 billion euros in March. It is also at an all-time record cumulatively over twelve rolling months, at 100 billion euros. A result which results not only from the soaring prices of energy imports caused by the war in Ukraine, as indicated by Customs on Monday, but also from the weakness of French exports in March. Regarding the balance of payments, which includes trade in services, the current account deficit stood at 3.2 billion euros in January, against 2.3 billion the previous month, indicates the Banque de France.

This is not the first time that France has crossed the bar of 10 billion euros in trade deficit. This level had already been reached, with 10.3 billion euros, last February (against 7.95 billion the previous month). Over the year, it stood at “84.7 billion euros in 2021, its historic low”, had indicated the Minister in charge of trade and attractiveness, Franck Riester. The previous record was in 2011, at 75 billion euros, during the eurozone crisis that followed the 2008 financial crisis.

Why such degradation?

How can such a situation be explained? One of the main factors is the increase in the amounts of products imported by France compared to exported goods, or 57.4 billion euros against 45.9 billion euros in March, according to Customs. “The increase in the amounts traded is driven by the increase in prices”, they explain, specifying that import prices have increased by 5% while they have taken only 2% for exports.

Among the most expensive goods: hydrocarbons on which France is largely dependent. The price of a barrel of oil has indeed experienced a dizzying increase in recent months, exceeding 100 dollars. Last March, Brent exceeded $110 a barrel while WTI reached $109.60, a record since 2013. road, it is above all the war in Ukraine that has driven up the cost of black gold. Certain international decisions have, in fact, weighed heavily on prices, like the American economic sanctions on Russian oil. Especially since the Organization of Petroleum Exporting Countries (OPEC) is still reluctant to open the floodgates and significantly increase the production of barrels per day, one of the solutions to limit the rise in prices.

Electricity and gas have also seen their prices explode. Over the past year, their price has soared due to the strength of the recovery in the global economy, particularly in China. As with oil, the economic sanctions taken against Russia have accentuated the rise in energy prices.

Faced with a higher cost of imports, French exports proved less vigorous in March, widening the trade deficit, add the Customs. They have, however, been on a continuous rise since the beginning of 2021. Here again, one of the possible explanations is to be found in the conflict in Ukraine, indicates the Asteres cabinet. European exports to Ukraine, Russia and Belarus have indeed fallen. The new confinements in China which maintain Beijing’s zero Covid strategy are also weighing on trade, specifies Asteres.

Is France the only one in this case?

Elsewhere in Europe, some countries are also experiencing a growing trade deficit. Even Germany saw its exports decline in March with a 3.3% drop compared to the previous month, mainly caused by the collapse of exports with Russia. But, unlike France, Berlin nevertheless recorded an increase (+8.1%) over one year, indicated in early May the federal statistics office Destatis. As for the amount of German imports, it is, as in France, up 3.4% compared to February and 20.3% over one year, reaching 117.4 billion euros.

Read also 7 mnDanger on Germany’s trade balance: exports fall, imports soar

In Italy, the trade deficit reached 5.05 billion euros over one year, according to figures from the National Institute of Statistics (Istat) released last March. The country had however posted a trade surplus of 1.58 billion euros in January 2021.

At European level, the euro area recorded a deficit in trade in goods with the rest of the world of 7.6 billion euros in February 2022, compared to a surplus of 23.6 billion euros in February 2021, according to the first estimates given by the EU statistical office, Eurostat.

How to reverse the trend?

This clear deterioration seems to have settled permanently in the French future if we are to believe the words of Bruno Le Maire in January. According to the Minister of the Economy, it will take ten years for France to regain the balance between its exports and its imports. Pessimistic, the minister had nevertheless put forward explanations for this French trend: The weakness of our foreign trade is a reflection of the weakness of our domestic economy.”, he explained. For Bruno Le Maire, the solution is therefore “industrial reconquest”. “It will be long, difficult, it will require courageous decisions but it is the condition of national prosperity”he justified.

Especially since, in some sectors, France has already succeeded in reindustrialising. “In 2021, France imported 900 million euros worth of masks, compared to 6 billion euros in 2020: the policy of reindustrialization and mask production chains paid off”, thus congratulated Franck Riester in February underlining the good health of other sectors such as pharmaceutical products, luxury products, agri-food, textile products.