Question

What is economic transition? Describe the obstacles that countries face during economic transition. Use examples of countries to support your answer.

Answer 1

Meaning of Economic Transition

Transition economy or Transitional economy is an economy which is changing from a centrally planned economy to a market economy. Transition economies undergo a set of structural transformations intended to develop market-based institutions.

In short we can say ,

Transition economy is the change from one economic system to another.

I am taking the example of France incontext of obstacles face during Economic Transition.

3 Economic Challenges faced by France

France is the second-largest economy in the EU after Germany and also the second-most populated.2 3 However, it has maintained slow population growth .

France has struggled with high unemployment since the 2008 global financial crisis, as have other EU countries.5 But while unemployment has since improved for other European nations, it has continued to affect France's productivity and competitiveness.

France’s main economic challenges in 2019 are to high rate of unemployment, lagging competitiveness and sluggish growth.

1. High Unemployment

The unemployment rate in France, though improving in recent quarters, remains stubbornly high. In the fourth quarter of 2019, France posted an unemployment rate of 8.1%, which was better than the 8.5% registered in third quarter and the 8.8% notched in the year-ago period.5 France has the fourth-highest unemployment rate among European countries. Only Italy, Spain and Greece do worse.6 For workers 25 to 49 years of age, the unemployment rate was 7.4% in the final quarter of 2019, improved from the 7.9% registered in the third quarter. Workers over the age of 50 also did better. Their unemployment rate was 5.8%, compared with 6.3% previously.

2. Lagging Competitiveness

France has seen its competitiveness wane. The nation has run a current account deficit over the past decade, meaning that France imports more than it exports. In 2018, its current account showed a deficit of 15.1 billion euros, which was slightly better than 2017, when its current account deficit was 16.4 billion euros.10

The Banque de France attributed the improvement to an increase in trade in services, driven by R&D and professional management services. However, France paid more for energy, which put pressure on the current account.11

In 2013, France introduced the Competitiveness and Employment Tax Credit (CICE) to lower labor costs and help French firms become more competitive. In 2019, the CICE was scrapped and replaced with a reduction in employer contributions to social welfare programs.12

Despite lower labor costs, many French manufacturers cannot find sufficient skilled labor to meet demand, which is hampering growth.

3. Sluggish Growth

In December 2019, the Banque de France expected 2019 economic growth to come in at 1.3%. The bank forecast growth easing to 1.1% in 2020 before strengthening in 2021 and 2022.16

The bank said a deterioration in the global economy could weigh on growth, although strong domestic demand would provide support. Inflation would fall to 1.1% in 2020 on lower food and energy prices.

In February 2020, Banque de France said it expected industrial production and business activity to fall in most sectors as a result of the global coronavirus.

I hope this topic will clear to you. ?