Forecasting Eye

 

A couple of days of conferring in Paris with movers and shakers from around the world convinces me of the huge shift in sentiment in France. Last year’s elections, with President Macron winning a reasonable majority over Mme Le Pen but then winning a landslide majority in the Parliamentary elections, from a standing start after setting up his own party, showed that the French had a desire for change.

 

Macron looks to be winning a trial of strength with the unions, particularly the rail unions (who in a bizarre twist of fate are now disrupting the UK) as he moves to introduce flexibility in the labour market.

 

And both businesses and consumers in France seem to be responding with the confidence to spend money. Restaurants are full, shops have new stock and every street seems to have construction work taking place. French retail is helped by two factors – the nation has not yet gone online (allegedly because of the difficulty of getting the French Post Office to return things) while unlike London the shops don’t focus their attention on oligarchs and hipsters. So there is plenty of choice for ordinary people. The latest INSEE consumer confidence index was 100 – its long term average in March. The index has been around this level since last summer’s election after averaging below 90 for nearly 10 years. Business confidence is even stronger at 109. My best guess is that unless a euro crisis blows us all out of the water the French economy should outperform the consensus forecast this year.

 

The renewed confidence at home is being associated with a proactive posture abroad. The French see an opportunity with the British sidelined by Brexit.

 

In the EU, France is pushing for budget sharing to handle the Italian debt problem. But they are unlikely to get much change from the Germans. And the posture of the new Italian government is not encouraging other EU members to make concessions.

 

On defence, they seem to be pushing the EU army at the expense of NATO. Most military people, having fought hard to keep Trump from breaking up NATO, are not enthusiastic about this, though the Germans have indicated they will show some flexibility here.

 

The French also showed themselves proactive in lobbying the Americans hard over both the maintenance of the Iran deal and tariffs and seem quite surprised to be rebuffed on both.

 

Despite the risk of overconfidence abroad, the new mood in France is important. It will support further liberalisation moves at home to boost the economy. We in the UK should avoid being so preoccupied with Brexit that we forget the need to keep liberalising our economy to maintain our competitive advantage as we adapt to new technology.

 

And of course the real lesson of Macron’s victory is that when the political class unites it can defeat extremists. Macron’s success in replacing both the mainstream socialists and the Gaullists is an indicator of what could be done if post Brexit the Blairites merged with the Tories….

 

Contact:

Douglas McWilliams dmcwilliams@cebr.com   07710 083 652