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Business Cycles Analysis; The outlook for real GDP growth

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  1. Introduction
  2. The environment
    1. The international environment
    2. The world's real growth
    3. Crude oil prices
    4. The exchange rates
  3. The domestic environment
    1. The Index of consumer confidence
    2. Business expectations
    3. Special factors
  4. The real economy
    1. Contributions to the real growth of GDP
    2. Unemployment rates and capacity utilization
    3. Wages, prices, interest rates
  5. An alternative scenario: the OFCE site
    1. The main differences between the two scenarios

Nowadays, the real GDP growth seems to be the prevailing worry for every economy. We are going to analyze real GDP growth and employment in France in 2006-2007, in the context of the international economy. Our overall objective is to understand and to interpret growth forecasts for a given country (France), to understand and to analyze the elements contributing to real GDP growth.

To reach this aim, we will first study the international and national environments of the French economy, to judge whether the international and domestic contexts are favorable or unfavorable for the growth in French GDP growth, and for its constituent elements. We will then study the real economy to form a growth forecast. In the second part, we will study successively:

-Contributions to real GDP growth;
-Unemployment rates and capacity of utilization;
-Wages, Price, and Interest rates.

Finally and to conclude, we will try to find an alternative forecast scenario. The first scenario, which we will study in the first two parts, is based on the interpretation of data collected from the INSEE, the Ministry of Finance and sites of the Central Banks, that is to say the ?official? sites.

[...] Given the fact that the business climate is quite the same as in 2006, and the fact that long-term interest rates are still high, the INSEE expects a lower growth in investment. Besides, the aggregate demand is not expected to increase a lot. It is going to stabilize compared to 2006, and the external demand is going to decrease a little. Thus, the investment growth rate is going to decrease a little compared to 2006 (from 4.2 to 3.5 ) Fiscal policy in percentage Let's apply the IS-LM model to the French situation. [...]

[...] The real GDP growth would increase by in 2006, then by in 2007. The slowdown of consumption would be the main reason for such a weakening. The past tightening of the monetary policy, the less favorable developments on the property market than in the past, and the inflation acceleration would weigh on household consumption, causing a stop in the decrease in saving rate, which became negative over the recent period. With the slowing down of the economic growth, the American current account deficit would be broadly stabilized, but on a high level. [...]

[...] Nevertheless, we can be sure that higher industrial orders will increase production, and may, in a way, develop investment and play a role in the real growth of GDP. To conclude, there is a chart that can sum up all the business expectations. This index is called the ?retournement de conjuncture? index. This index is higher than 1 (respectively lower than if there is a huge increase in activity (decrease in activity), and remains in the neutral zone (between 0.33 and - 0.33 ) when the situation is uncertain, or when this situation is similar to the long-term situation. [...]

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