French capex growth to accelerate to 2.7% yoy in 2016

Non-financial corporate investment increased for the sixth quarter in a row in Q3 15(+0.7% qoq, 2.1% yoy). From an historical point of view, the capex recovery remains modest (it usually increases by 4% during cyclical recoveries). The October INSEE quarterly survey of manufacturing investment showed that business leaders in this sector anticipate a modest rebound in investment in 2016, estimated at 3% in value. 

By historical standards, 3% is low (in 2011, investment expectations reached 14%!). The tax burden on corporations is set to be reduced by €10bn (0.5pp of GDP, 3.1pp of the gross operating surplus) in 2015 and by €10bn more in 2016, thanks to the Competitiveness Pact and the Responsibility Pact. 

According to INSEE, gross savings (profits net of taxes, debt services and dividends) already rose from 8.7% of GDP in 2014 to 10% in H1 15, a level significantly higher than the historical average (9.3% of GDP)! This ratio should continue improving in H2 2015 and 2016. 

"Economic models point to at least a one-year lag between the improvement in profit margins and capex decisions, which is the reason why we remain cautious about 2016. Moreover, concerns over China and global trade will likely dampen any investment decision", notes Societe Generale.