Home / World Economy / World Economy News / French Economy Loses Pace as Macron Gambles for Long-Term Gains

French Economy Loses Pace as Macron Gambles for Long-Term Gains

The French economy may have just had its worst quarter in more than a year and there could be further pain ahead if planned strikes opposing President Emmanuel Macron’s reforms go forward.

Industrial sentiment fell to the lowest in more than a year in March and manufacturing output unexpectedly declined in February, according to reports this week. A broad measure of private sector activity is at a seven-month low.

The Bank of France said GDP may have only risen 0.3 percent in the first quarter, down from a 0.7 percent pace at the end of 2017, and the weakest since the third quarter of 2016. Some of that may be explained by snowstorms that affected activity across much of the continent.

France could see further downside pressure this quarter as unions clash with Macron over his proposals, which include changes to the rail network and education system. With close to 40 days of industrial action threatened, that would hurt transport and broader economic output. But those hits will only be short term, and Macron may refuse to buckle, gambling that the long-term benefits of his reforms, boosting competitiveness and helping to reduce unemployment.

Feeling Pinch
France’s corporate sector is already feeling the pinch. Battling worker demands for a share of profits, airline Air France-KLM estimated this week that seven days of stoppages since late February will shave 170 million euros ($210 million) off operating income. More action is planned for this month.

Bank of France Governor Francois Villeroy de Galhau said Tuesday that the economy is still benefiting from a catch-up effect and that it needs changes to boost potential growth and ensure a continued sustainable expansion.

“We have a growth rate that’s better than recent years, but still below the average in Europe, and a debt that’s one of the highest in Europe,” Budget Minister Gerald Darmanin told France2 television Wednesday. “We have to continue to make efforts to cut spending, and cut taxes.”

Bloomberg Economics estimates that weather-related disruption could trim 0.1 percentage point from growth in the first quarter, and the strikes, if fully implemented, may knock 0.2 points this quarter. Underlying momentum is probably around 0.5 percent a quarter, according to David Powell and Jamie Murray at BE.

What Our Economists Say:

“The impact of the work stoppages on economic activity will disappear after 2Q. The longer-term effect will depend on how Macron responds. Taking on the rail unions without compromise threatens to erode his political capital. For now, a slim majority of voters appear to be with him. But that could change.”

The latest Bloomberg monthly survey, published in March estimates the GDP will increase 0.5 percent in each quarter of 2018. Full-year growth will reach 2.1 percent, the best since 2011.
Source: Bloomberg

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping