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France Country Risk Reports Q2 2015

France Country Risk Reports Q2 2015

Core Views

The French economy continues to lag behind the eurozone, even as the region is beginning to show signs of a recovery. While the improving regional economic outlook may provide some limited upside potential, this will not be sufficient to drive a recovery in French manufacturing unless the country first addresses its outstanding competitiveness issues.

Although we are likely to see a gradual increase in positive rhetoric towards structural reforms, Hollande is unlikely to become an ambitious reformer of the French model. While we expect some reformers will take baby steps in the right direction, the ability of Hollande to implement sweeping reforms will be restrained by divisions within his own party and core support base, and resistance from the proliferation of special interest groups which will make unilateral reform a troublesome and compromised process.

We expect pressures on the government to engage in more concerted fiscal consolidation to mount over the coming quarters, particularly as lower growth begins to translate into lower government revenues.

Major Forecast Changes

We have downgraded our government budget forecasts for France and now expect the fiscal deficit to arrive at 4.3% of GDP in 2015 and 3.9% in 2016, from 4.0% and 3.7% previously.


Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Reform Drive Not Enough To Boost Growth
The latest economic reforms designed to boost growth and competitiveness in France will once again flatter to deceive. Even in the
unlikely event that the bill is implemented fully, the policy package will not go far enough to reduce red tape or loosen labour market
regulations. This will consign the country to economic stagnation for at least the remainder of Francois Hollande's presidency.
TABLE: Political Overview
Regional Politics
EU Headed For Fresh Political Crises
The rise of far-left, far-right and other anti-establishment parties will cause significant problems for EU policymakers over the next few
years. While most of these non-traditional parties are unlikely to win power, mainstream parties will adopt some of their rhetor ic to
woo their support er s. This means less pr ogress trimming budget de ficits in the eurozone periphery and more opposition to the EU's
freedom of movement for workers principle in Western Europe.
Long-Term Political Outlook
Rising Populism To Increase Instability
Political risk in France will remain elevated over the coming decade, with the rise of the far-right, spurred by perceptions of mass
immigration from Muslim nations, among the most pressing issue s facing the country's politicians. Moreover, a stagnant economy –
hindered by a lack of reform momentum and an ageing population – will also ensure that the risk of social unrest or extremist parties
gaining influence remains prominent over the coming decade.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
Two Years Of Stagnation Ahead
The French economy will grow less than 1.0 % in both 2015 and 2016 as private consumption growth remains weak. Fixed investment
will stagnate until at least 2017, while anaemic growth in key trade partners will prevent net exports providing a boost to economic
activity.
TABLE: GDP By Expenditure
Fiscal Policy
Weak Reform Drive Signals Malignant Debt Burden
France will continue to post among the largest budget deficits in the eurozone over the next few years. A lack of political will to
implement structural reforms, combined with sluggish growth will ensure that French public finances do not materially improve until at
least 2017.
TABLE: Fiscal Policy
Balance Of Payments
No Chance Of Escape From C/A Deficit
France will continue to run a stable current account deficit over the coming years, which will be driven largely by an entrenched lack of
export competitiveness.
TABLE: Bala nce Of Payme nts
Regional Monetary Policy
Q&A On ECB QE
TABLE: Europea n Central Bank – Capital Key for Euro zone Member s
Chapter 3: 10-Year Forecast
The French Economy To 2024
A Difficult Decade
The French economic model is looking increasingly threatened over the coming decade, with tepid growth, rising debt loads and
persistent unemployment expected to characterise the country 's long-term outlook. Despite this somewhat bleak prognosis, we highlight
that we expect France to outperform relative to most of its regional peers.
TABLE: Long-Term Macroeco nomic Foreca sts
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
tABLE: Developed State s – Labour Mar ket Risk
Table : Developed State s – Logi stic s Risk
Table : Developed State s – Crime And Security Risk
table : Developed State s – Trade And Investme nt Risk
Chapter 5: Key Sectors
Autos
TABLE: Auto s Total Mar ket – Historical Data And Foreca sts
Food & Drink
TABLE: Food Consumptio n Indicator s – Historical Data & Foreca sts
TABLE: Hot Dri nk Value /Volume Sale s, Productio n & Trade – Historical Data & Foreca sts
tABLE: Mass Grocer y Retail Sale s By Format – Historical Data & Foreca sts
Other Key Sectors
Table: Oil and Gas Sector Key Indicators
Table : Pharma Sector Key Indicator s
Table: Infrastructure Sector Key Indicators
Table : Telecom s Sector Key Indicator s
Table: Defence and Security Sector Key Indicators
Table : Freight Key Indicator s
Chapter 6: BMI Global Assumptions
Global Outlook
New Era For Oil
Table : Global Assumptio ns
Table : Developed State s, Real GDP Growt H, %
Table : BMI VERSUS BLOOMBERG CONS ENS US REAL GDP GROWTH FORECASTS, %
Table : Emergi ng Mar ket s, Real GDP Growth , %

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