What is the economic environment as Macron’s term begins?

Whereas the two previous five-year presidential terms had been marked by major slumps – a global recession in 2008 and 2009 and the euro zone crisis in 2011 and 2013 – the new French president will benefit from a far healthier economy as his term begins.

The French economy is enjoying a better outlook for exports, thanks mainly to the ongoing economic recovery in emerging economies. Meanwhile, the support of the ECB’s ultra-accommodative policy is playing out in full, feeding an acceleration in lending and a stronger recovery in the real-estate market and in home building. Against this backdrop, job creations, which had already accelerated in 2016, are likely to remain strong this year, which should send the unemployment rate down more appreciably in the coming months.

Even so, the new president obviously still faces economic challenges. The first of these is growth. Although it has returned, it is still weak at 1.3% forecast for this year after 1.1% in 2016. This sluggish growth goes hand-in-hand with an ongoing slide in France’s competitiveness and structurally high unemployment, particularly for the youngest and the oldest persons.

The second challenge is this year’s deadline for cutting the budget below 3% of GDP. The new president does not want to amend the budget that has already been approved for 2017 (even if this choice will ultimately be made by the government that emerges from the legislative elections) whereas the 2016 budget deficit (-3.4% of GDP) was slightly higher than the target and declined only slightly from 2015 (-3.6% of GDP). So the budget deficit target will be hard to reach, which makes it even more necessary to quickly enact reforms that will reassure European partners.

François Letondu, Deputy head of macroeconomic surveys