French election 2017: The economic challenge

The words "employment" and "growth" are displayed on this government building in Paris

As French voters go to the polls for the final stage of the presidential election, the country's relationship with the European Union, immigration and terrorism will all be important themes.

But there is always an economic context that will feature as a major consideration for many voters.

And whether it is Emmanuel Macron or Marine le Pen who walks into the Elysee Palace, the winner will face some difficult, even intractable challenges.

The big picture is an economy with a high standard of living and high productivity but some persistent problems.

The issue that stands out is unemployment. Close to three million people who want to work and are looking for a job don't have one. The unemployment rate is 10.1%.

It's not as bad as some eurozone neighbours, but it is above average for the region and far worse than, for example, the Netherlands, where it is just above 5%, and Germany, where it is below 4%. The figure for the UK is below 5%.

A related problem is lacklustre economic growth. The most recent figure (the first estimate for the first quarter of 2017) was an expansion of just 0.3% from the previous three months.

You might think that unemployment will decline as the recovery from the eurozone's recession continues. Many forecasters expect it will, but not by all that much.

'Rigid structures'

The International Monetary Fund estimates that it will be hard to get unemployment down much below 8.5%.

France's unemployment rate is currently 10%

That judgement reflects what the IMF calls "deep rooted structural rigidities", factors that make the country's labour market less adaptable. They make it harder or less attractive for employers to take on new workers.

Here are some examples. The "tax wedge" is relatively large - that's the difference between a worker's take home pay and what it costs the employer.

There are long and uncertain procedures around dismissals, when an employer thinks they are needed. Of course there's a need to protect workers from unfair and arbitrary sackings, but many labour market experts do think that in France the balance is wrong and that it acts as a disincentive to hiring new workers.

It is relatively easy to get out of work benefits and the IMF says the education system has failed to keep up with the changing skills needed by employers.

There have been reforms intended to make inroads into these issues, including a package known as the Macron law, named after Emmanuel Macron, one of the two remaining presidential candidates when he was economy minister. The IMF has welcomed this but says more is needed.

Then there is the 35-hour working week. It doesn't ban long hours, but is a threshold which triggers overtime payments. Critics think it raises costs for employers, supporters that it protects workers and encourages employers to hire more people.

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High productivity

There is also a feature of the French business regulation and taxation that affects the size of firms. Nicola Brandt from the Organisation for Economic Co-operation and Development (OECD) told the BBC that there's a threshold effect - regulations that kick in when a firm has 50 or more employees that inhibit those that might otherwise grow.

So she says France is relatively lacking in medium-sized firms - a particular contrast with Germany whose "Mittelstand" is often seen as the backbone of the economy.

France does have very high levels of productivity, a measure how much each worker produces.

There are some good reasons for that. France has highly skilled managers and engineers. Infrastructure - the transport and energy system for example - is good.

But it also reflects the high cost of employing people. If businesses don't want to hire low-skilled people because it's too expensive and they invest in equipment or software instead, it makes the average productivity higher.

And while the level of productivity is high, the rate of increase has slowed as it has in other developed economies.

Cheap borrowing, big debt

The government's finances are also a nagging issue in France.

It's true the government's borrowing costs are not high. One widely used measure is the yield or return in the financial market on government bonds or debt due for repayment in 10 years. It's below 1%, significantly better than the eurozone countries that have (or recently had) more pressing debt problems, such as Spain, Italy, Portugal or Greece.

In fact, for some shorter term borrowing the French Treasury has to raise the money at a rate of below zero, which means that financial market investors have to pay the state to take their money.

Would the French economy have been more competitive if it had kept the franc?

But the French government's debt burden is fairly high, close to 100% of annual economic activity or GDP. That's a marked increase since the turn of the century when it was less than 60%.

The IMF says that fiscal dynamics could easily derail, if for example economic growth is a lot weaker than expected. What it means by that is that the debt burden could rise quite rapidly if weak economic growth undermines tax revenue.

Currency competitiveness

Another feature of the French government's finances is that the public sector is one of the largest.

Public spending last year was 56.5% of GDP, the highest of any of the developed economies. The benefits include high levels of public services, but it does also mean French people and businesses pay a lot of tax.

One of the defining features of French economic life this century has been the use of the euro as the country's currency. France has not been at the eye of the financial storms that raged in the early part of this decade, though the debt level and rather sluggish economic growth did make some commentators wonder whether that might have changed.

But you could argue that the lack of a separate national currency has deprived France of a means of restoring competitiveness if it does decline. Simply allowing the currency to fall can sometimes achieve that.

France does indeed have a problem with competitiveness, as shown by its export performance and measures of what are called unit labour costs (which factor in both productivity and the cost of employing workers).

So perhaps France might have been more competitive with its own currency. That said, France is certainly not the eurozone country where that kind of concern carries the most weight.