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●   Golden decade delayed: In 2017, we made a big call that France was heading for a golden decade in the 2020s. We see growing evidence that France is turning the corner. Before the COVID-19 pandemic struck, President Emmanuel Macron’s juggling act – keeping his reform drive alive while making concessions to protesters and trade unions – was working. The reforms boosted growth, investment and pushed down unemployment. Although the pandemic changed France’s policy priorities, Macron still wants to push the reform process forward. Whether or not this happens depends on the outcome of the spring 2022 presidential election. 

●   Political uncertainty and polarisation: France’s far-right leader Marine Le Pen is making a comeback. According to recent polls, if the presidential election were held today, Le Pen would beat Macron in the first round before ultimately losing in the second round by a smaller margin than that of 2017 – Chart 1. But it is very early days and much can happen before April 2022. Later this year, Macron faces a big electoral test with regional elections set for June 2021. The likely low turnout and the proportional voting system favour Le Pen’s National Rally party. If her party rides high, it will be seen as an important measure of support for Le Pen ahead of the 2022 presidential election.

●   Reform pause: Just before the pandemic struck, Macron had been on the verge of passing a signature pension reform. He put this and other plans on hold during the crisis. We doubt that he can achieve much before the 2022 election. Nonetheless, he is likely to implement at least one reform this year, the postponed unemployment insurance reform.

●   Healing takes time: The economic recovery this year will be driven by four main factors: 1) government support for economic activity through public-sector demand and income support under the €100bn recovery plan; 2) an improvement of the underperformance in exports on the back of higher global demand, especially from Asia and the US; 3) favourable financing conditions, which should stimulate business investment; and 4) a dissipation of the shock to private domestic demand, although it will remain present due to fears of unemployment and the circulation of the virus. In 2022, the private demand shock is likely to dissipate further, adding to the economic rebound. We expect France to return to its pre-pandemic GDP in Q1 2022.

 

 

Christopher Dembik

Senior European Economist

+336 01 44 43 60

Christopher.dembik@berenberg.com

 


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