The business tendency surveys carried out in different sectors of the economy,both in France and in the Eurozone, confirm the growing number of companies to have experienced a slowdown in production since mid-2017. More specifically, entrepreneurs interviewed in the manufacturing industry, construction and services report growing difficulties in meeting demand. While the proportion of business leaders who say that they have been limited by insufficient demand has largely declined, more and more are reporting production difficulties related to supply, especially in Germany and France. In particular, the majority of obstacles described are related to a lack of personnel and difficulties in boosting staff numbers.

These reports of a shortfall in supply combined with excess demand are in sharp contrast to the short-term message conveyed previously in the surveys. Indeed, business leaders tended rather to report the opposite imbalance, i.e. a lack of demand. In France, the increase in supply-side tensions and the high rate of growth recorded in 2017, which contrast with figures from the previous decade, raise questions over the current economic situation. Did the French economy reach the peak of a cycle in 2017? Or, conversely, can it continue to grow at the same sustained pace in view of the pressures on the supply side already observed?

Finding answers to these questions requires first identifying the position of the economy in its cycle, a very uncertain exercise as the indicators do not all show the same tensions, as can be seen most notably from the relatively low level of core inflation. To do this, economists resort to the notion of potential gross domestic product (GDP), an unobservable quantity that corresponds to a sustainable use of production factors. In other words, potential GDP denotes a level of production that would be achieved in the absence of any imbalance in the economy. The difference between the observed level of output and potential GDP thus indicates the position of the economy in the cycle. However, this is a difficult notion to estimate. Several methods are therefore considered: a “structural” method based on a theoretical representation of production capacity, a “semi-structural” method which breaks down GDP into two unobservable components (its trend or potential GDP, and its output cycle or gap), and lastly a direct, purely statistical method based on economic indicators, with no prior modelling.

Here, the analysis is carried out for France, but the cases of Germany, Spain and Italy are also discussed. These estimates are to be considered with caution: the modelling choices may be disputed and certain weaknesses in the calculation methods may require caution in interpreting the results. However, in the case of France, they produce a relatively convergent economic diagnosis. After increasing substantially, first in 2008, and then in 2012-2013, the output gap appears to have gradually closed since 2014, in line with the disappearance of demand tensions and the appearance of supply tensions. In 2018, the French economy seems to have settled around the level of its potential, according to these three methods.