Country report France

Economic overview

In the first quarter of this year, French GDP contracted only 0.1% quarter-over-quarter, following a decline of 1.5% in the fourth quarter of 2020. Economic activity was supported by a modest rebound. of investment spending and private consumption.

In 2022, the French economy is expected to grow by 5.3%, with investments and exports further increasing (by 4.5% and 9% respectively). Private consumption is expected to grow by 6.7%. As in the second half of 2021, households’ purchasing power will be supported by the government layoff plan and by the savings accumulated during the closures. However, rising unemployment (forecast at 9.2% in 2022, from 8.3% in 2021 and from 7.8% in 2020) could hamper private consumption.

Since the outbreak of the pandemic in France, the French government has launched massive stimulus measures to support both consumers and businesses. In order to support companies affected by the pandemic, the government has launched several measures, such as a layoff scheme, a solidarity fund to help small businesses and micro-entrepreneurs, a large state-guaranteed loan program (prêt guaranti par l’État, PGE), and measures that facilitate the establishment of moratoriums on the payment of debt and rent.

As a result of these stimulus measures and the negative impact of the pandemic on tax revenues, the French fiscal deficit increased to 9.4% of GDP in 2020. With additional public spending to support the economy in 2021 and 2022, yes expects another deficit of nearly 9% of GDP this year, followed by a deficit of 6.5% of GDP next year. Currently, the government’s economic policy agenda focuses on the implementation of a supply-side recovery plan of € 100 billion (of which € 40 billion is expected to come from the € 750 billion recovery fund of the EU, subject to final approval by the EU Commission and the European Council). The recovery plan mainly aims to revive the industrial sector by increasing competitiveness and investments in digitalisation and ecology (green businesses), while another pillar is the strengthening of social and territorial cohesion (including job creation / minimizing rising unemployment).

Main sectors of industry

Automotive / Transportation: Automotive production is expected to increase by around 22% this year, following a 28% decline in 2020. However, despite the strong rebound, the credit risk situation of many businesses remains tense as the 2020 decline led to severe liquidity strains and cash shortages. Despite broad stimulus measures (for example, direct spending and tax relief measures), many Tier I and Tier II subcontractors, and even some midsize companies, are facing increased credit risk. Production of the French aerospace industry will rebound by around 13%, but will contract by more than 30% in 2020. Subcontractors will continue to suffer from subdued activity, with no real recovery expected before 2024-2025. As the segment needs to consolidate, many players will disappear in the short and medium term. Due to all these adverse factors, the industry’s performance outlook remains “bleak” for the time being.

Construction / Building Materials: The outlook for the performance of the sector has been improved by one level, but remains “Poor” for the moment. The industry was performing poorly prior to the coronavirus outbreak, with liquidity problems for businesses rising due to difficulties in financing their working capital needs. Construction production contracted 14% in 2020. While residential and non-residential construction activity continued to decline in early 2021, the renovation subsectors have remained resilient so far. Construction production is expected to rebound by around 12% in 2021, but material shortages, volatility in input prices and project postponements are weighing on businesses with tighter margins. Thanks to government support measures, construction insolvencies remained low in 2020 and Q1 2021 as well, but business failures are expected to increase towards the end of this year.

Electronics / ICT: Sales have deteriorated due to business closures due to lockouts, and some retail businesses face a reduced level of cash inflow. However, business and employee spending on digital goods and services has increased due to the sharp rise in remote working, and ICT production is set to grow by 5% this year. Therefore, the industry performance outlook has been updated one level from “Poor” to “Fair”.

Machinery / Engineering: Machinery production is set to rebound by 13% in 2021 after a similar contraction in 2020. After a difficult period due to the blocking of investments by many industries, a rebound has begun since the end of 2020 The outlook remains positive for the second half of 2021 and 2022 as previously postponed capital investments will finally be realized. Engineering production is expected to grow 11% this year and 4.5% in 2022. Therefore, the industry performance outlook has been updated two levels, from “Bad” to “Fair”.

Metals and Steel: Both industries will see a recovery in orders and sales this year as demand from some key purchasing industries (automotive, construction and machinery / engineering) is rebounding. French iron and steel production is expected to increase by 14.5%, following a contraction of 18.5% in 2020. While producers currently benefit from higher selling prices due to increased demand and a shortage of products in steel and metals, higher input prices due to a lack of raw materials are a problem. Both metals and steel sectors have been upgraded one level from “Bad” to “Poor”.

Services: Due to global lockdown measures and the ongoing pandemic, many segments have suffered heavily, especially hotels and catering, restaurants, bars, entertainment and cultural events, travel agencies and tour operators. After a 10% contraction in 2020, service production is expected to rebound by around 4% this year. The recovery of the tourism sector to past levels will take some time. Tourist flows will not fully recover in 2021, as some people will refrain from traveling to limit health risks. With the easing of restrictions, the severely affected hotel and restaurant segment will recover, but only by around 8% in 2021, after a 29% contraction last year. The performance forecast of the services sector remains “gloomy” for the moment.

Taxation for businesses in France

The corporation tax (IS) is compulsorily applied to corporations and similar (SAS, joint stock and simple joint stock companies, limited liability companies, limited partnerships and certain cooperatives) due to their legal form. and regardless of the corporate purpose. 

The SI also applies, due to the nature of the activity carried out, to civil industrial companies and more generally to companies that carry out commercial activities or carry out transactions of a lucrative nature. On the other hand, partnerships and similar bodies can opt for IS taxation. Local public bodies (regions, departments, municipalities, public institutions of inter-municipal cooperation with their own taxation, municipal unions and mixed unions made up exclusively of local authorities or their groupings) are totally exempt from IS. 

On the other hand, companies that establish themselves in certain areas of the French territory characterized by economic and social hardships benefit from a temporary exemption from the IS (e.g. Corsica, regional aid areas, areas of rural revitalization, sensitive urban areas, areas of urban redevelopment, urban free zones, competitiveness poles).

According to the action plan provided for by the 2018 Finance Act, the corporate tax rate cuts are applied over a five-year period as follows:

for tax years starting from 1 January 2018 or later, the standard rate for all companies is 28% on taxable income up to EUR 500,000 and 33.33% on taxable income above this amount;

  • for tax years starting from 1 January 2019 or later, the standard rate for all companies will be 28% on taxable income up to EUR 500,000 and 31% on taxable income above this amount;
  • for tax years starting on or after 1 January 2020, the standard rate for all companies will be 28%;
  • for tax years starting on or after 1 January 2021, the standard rate for all companies will be 26.5%;
  • for tax years starting on or after 1 January 2022, the standard rate for all companies will be 25%.

Investing in France

The numbers, in particular in recent years, have been a smile to investors who have turned their attention to the French real estate market. In 2019, for example, the volume of transactions exceeded one million, growing each month by + 6.2% until June 2019 and by + 10% at the end of October of the same year (Notaires de France data)

The data on price growth are also very interesting: in the various areas of the country.

In the Île-de-France, the average price growth reached + 4.5% in the first quarter of 2019, compared to the previous one, reaching the price of around 6 thousand euros per square meter.

In the Grande Couronne, growth was around 0.3%, with average prices of € 2,970 per square meter.

While in the Hauts-de-Seine, one of the nation’s most populous departments, the average prices grew by 4.3% to reach 5,800 euros per square meter.

After this overview of the numbers that explain the good health of the French real estate market, let’s review five good reasons to invest in real estate in France.

A great opportunity to diversify: France does not only mean Parisian real estate which, on the other hand, has many advantages for investors, as we describe here. The nation offers many opportunities, even in the suburbs outside Paris, throughout the Grand Paris Express area. There are also good income opportunities in the rest of the country, in the other metropolises of the South, as well as in the tourist destinations, with income. much more stable over time, compared to some locations on the Italian real estate market.

Economic and political stability: one of the most important aspects that an investor must consider when preparing to invest in another country is its political and economic stability. France is the second largest economy in the euro area, after Germany, with GDP growing by 0.3% in the third quarter of 2019, which makes it one of the main “locomotives of Europe”. Even as a political weight within the European Union, the country always knows how to enforce its decisions, especially in times of crisis or difficulty. Not to mention that, being in the euro zone, an investor does not have to face problems such as the fluctuation of the currency, which can also be unfavorable, as can happen in investments in the American or Asian market.