Country Forecast France December 2017 Updater

Country Forecast France December 2017 Updater

  • December 2017 •
  • Report ID: 358959


  • The political landscape changed profoundly in 2017, with the president, Emmanuel Macron, who took office in May, coming to power at the head of a new centrist party, La République en marche (LRM). Mr Macron aims to repre-sent "both left and right", and as such has appointed a post-partisan government led by Édouard Philippe of Les Républicains, the main centre-right party.
  • LRM has a comfortable majority in the National Assembly (the lower house of parliament): over 70% of the seats belong to the party and its centrist ally, Mouvement démocrate (MoDem). Opposition from the two mainstream parties is limited, as the Parti socialiste (PS) has only 31 seats (out of 577) and Les Républicains is deeply split, with a "constructive group" supporting Mr Macron.
  • Mr Macron is therefore well placed to implement his reform agenda. He passed a flagship bill to liberalise the labour market by executive decree in September, and is now focused on reforming training and apprenticeships, and overhauling the social welfare system. The third plank of reform plans concerns the tax system, with the aim of promoting job creation and investment.
  • Stronger than expected growth is supporting fiscal consolidation. The Economist Intelligence Unit estimates that the deficit will narrow to 2.9% of GDP in 2017 and forecasts a 2.6% of GDP shortfall in 2018. Bringing the budget deficit back within the EU's 3% of GDP limit is a prerequisite for any serious consideration of Mr Macron's European reform ideas in Germany.
  • France is currently benefiting from a cyclical upturn in the euro zone, and we expect 1.8% real GDP growth in 2017-the strongest rate since 2011-and 1.9% in 2018 as improved trade momentum combines with more positive domestic business and consumer sentiment. A rising employment rate and stronger real wage growth will support consumer spending, while pent-up demand, reflected in a high capacity utilisation rate, will spur private-sector investment.
  • We forecast average annual real GDP growth of 1.6% in 2019-20 as the external environment becomes less supportive and 1.7% in 2021-22 as business environment reforms bear fruit. The current-account deficit will narrow as a share of GDP in 2021-22 as competitiveness gradually improves.
  • We estimate 1.2% EU harmonised consumer price inflation in 2017, reflecting the recovery in oil prices. We forecast 1.5% inflation in 2018 and an annual average of 1.6% in 2019-22 as domestic demand pressures strengthen.


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