Country Forecast France August 2017 Updater

Country Forecast France August 2017 Updater

  • August 2017 •
  • Report ID: 3234840 •
  • Format: PDF


  • France saw a profound change in its political landscape in 2017, with the president, Emmanuel Macron, who took office in May, coming to power at the head of a new centrist party called la République en marche (LRM). Mr Macron aims to represent "both left and right", and as such has appointed a post-partisan government led by Édouard Philippe, of Les Républicains.
  • LRM has a comfortable majority in the National Assembly (the lower house of parliament), with 60% of the seats belonging to the party and its centrist ally, Mouvement démocrate (MoDem). Opposition from the two formerly dominant mainstream parties will be limited, as the Parti socialiste (PS) holds only 30 seats (out of 577) and Les Républicains is deeply split, with a "constructive group" within it supporting many of Mr Macron's reforms.
  • Mr Macron is therefore well placed to implement his reform agenda. This includes deregulating and liberalising the labour market; building a more flexible, Nordic-style social welfare system; reforming the tax system to promote job creation and investment; and rebalancing public-sector spending to trim the deficit. Mr Macron will also attempt to re-launch the Franco-German partnership and build a more federalist, integrated euro zone.
  • The Economist Intelligence Unit expects significant reform progress, given Mr Macron's strong parliamentary majority. Resistance is likely to come primar-ily from the streets, and protests have already been planned for September, when the government aims to pass major labour reform measures. Although long-standing structural rigidities in the labour market and tax system will be slow to change, we expect the business environment to improve gradually.
  • France is currently benefiting from a cyclical upturn in the euro zone, and we have revised up our growth forecasts to 1.7% in 2017 and 2018 as stronger trade momentum combines with more positive domestic business and consumer sentiment. We expect growth to slow to an average of 1.4% in 2019-21 as the external environment becomes less supportive.
  • After a budget deficit of 3.4% of GDP in 2016, the official deficit target for 2017 is 2.7%. However, we do not expect the shortfall to return to the EU's 3% of GDP limit until 2018. Public debt will remain close to 100% of GDP in 2017-21.
  • We expect EU harmonised consumer price inflation to accelerate to 1.1% in 2017 as oil prices recover, and to stabilise at around 1.4% in 2018-21.


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