France Country Risk Report Q2 2016
French economic growth will lag the rest of the eurozone over thenext two years as investment growth and external demand remainlacklustre. Meanwhile, meagre wage growth and high unemploymentmean that household consumption – traditionally the key driver ofthe economy – will become less able to support growth.
France will experience a temporary terms of trade boost in 2016 and2017 which will keep its trade deficit from expanding significantly.
Beyond 2017 we expect the structural inefficiencies of the Frencheconomy to result in an expansion of its trade and current accountdeficits.
While France will benefit from a cyclical economic upswing in theeurozone, it is too early to tell if improving economic conditions willbe enough to save President Francois Hollande from elimination inthe first round of the presidential election.
We expect the 2016 budget, which is the last to be submitted byHollande before the presidential election, to fall short of its deficitreduction targets as expenditure cuts are insufficient to outweighthe proposed tax cuts.
Although we are likely to see a gradual increase in positive rhetorictowards structural reforms, Hollande is unlikely to become an ambitiousreformer of the French model. While we expect some reformerswill take baby steps in the right direction, the ability of Hollande toimplement sweeping reforms will be restrained by divisions withinhis own party and core support base.
Changes To Forecasts
We maintain our current GDP forecasts for 2016 and 2017, atUSD2.42trn and USD2.57trn respectively.
In light of a downward revision to our oil price forecasts, reducing theenergy import bill, we have modestly narrowed our current accountdeficit forecast from 0.7% to 0.2% of GDP in 2016.
- Executive Summary
- Core Views
- Changes To Forecasts
- Key Risks
- Chapter 1: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Index
- Economic Growth Outlook
- Lack Of Investment And Labour Market To Restrain Growth
- French economic activity will not reignite in 2016 and 2017, with private consumption remaining the sole growth driver. The country's
- rigid labour market, high labour costs, and lack of investment will continue negatively to impact our growth forecasts for the years to
- GDP By Expenditure Outlook
- TABLE: 10 YEAR GDP FORECAST
- TABLE: PRIVATE CONSUMPTION FORECASTS
- TABLE: GOVERNMENT CONSUMPTION FORECASTS
- TABLE: FIXED INVESTMENT FORECASTS
- TABLE: NET EXPORTS FORECASTS
- Fiscal Policy And Public Debt Outlook
- Defence And Unemployment To Drag On Deficit
- France's loose and expansionary fiscal policy will extend well into 2016 and 2017, as the government fails to keep public expenditure
- under control. The country's beefed – up security and defence spending, as well as high structural unemployment, will push France's
- public debt above 100% of GDP and keep its budget deficit over 3.0% over the coming years.
- Structural Fiscal Position
- TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
- TABLE: FISCAL POLICY
- External Trade And Investment Outlook
- Favourable External Factors Not Enough For France's Export Sector
- Low oil prices and the depreciation of the euro will not compensate for France's declining competitiveness in export-oriented sectors.
- The current account balance remains in slight negative territory in the years to come, due also to increasing imports amidst a recovery
- in domestic demand.
- Outlook On External Trade
- TABLE: BALANCE OF PAYMENTS
- TABLE: TOP 5 GOODS IMPORTS IN 2014
- TABLE: TOP GOODS EXPORTS IN 2014
- Regional Monetary Policy
- ECB: Underwhelming But Still Substantial Easing
- The ECB's monetary policy easing on December 3 disappointed markets in terms of its depth and breadth. However, strengthening
- economic and inflation conditions in the eurozone suggest that the ECB may be better off holding fire, and in our view, the easing is still
- fairly significant despite disappointment on the headline figures. We continue to forecast a weaker euro in 2016.
- Chapter 2: 10-Year Forecast
- The French Economy To 2025
- 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 MACROECONOMIC FORECASTS
- Chapter 3: Political Outlook
- SWOT Analysis
- BMI Political Risk Index
- Domestic Politics
- Regional Elections: FN Remains Empty Handed
- The Front National's failure to secure any region in France's second- round regional elections on December 13 underscores the
- difficulties it faces in entering the political mainstream. Although the election results are a sign of relief for President François Hollande,
- high unemployment and the poor state of the economy continue to jeopardise his prospects of getting through to the second round of
- presidential elections in early 2017.
- TABLE: POLITICAL OVERVIEW
- 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 issues facing the country's politicians.
- Chapter 4: Operational Risk
- SWOT Analysis
- Operational Risk Index
- Operational Risk
- TABLE: DEVELOPED STATES – LABOUR MARKET RISK
- TABLE: DEVELOPED STATES – LOGISTICS RISK
- TABLE: DEVELOPED STATES – CRIME AND SECURITY RISK
- TABLE: DEVELOPED STATES – TRADE AND INVESTMENT RISK
- Chapter 5: BMI Global Macro Outlook
- Global Macro Outlook
- Unfinished Business In 2016
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
- TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
- TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
- TABLE: FRANCE – MACROECONOMIC DATA & FORECASTS