Renewing the Entente: Macron’s “New France” is good for Britain too

 

The French mood this Bastille Day should be buoyant. And why not? The French economy has returned to growth with jobs growth of 90,000 in Q1, of which 80,000 were in the private sector. Cebr’s GDP forecast for France this year is 1.6% but on present trends there is a strong chance that this will be beaten.

 

President Macron has energised a whole country and his victory in the Presidential election has been surpassed by the landslide for his new party in the National Assembly elections. France has emerged as a world leader both in the EU and in G-20 and the French proposal of economic reform combined with fiscal stimulus may turn the tide for the Euro.

 

On the downside, France still has a deficit of over 3% of GDP  both for this year and forecast for next year, leaving France with a possibility of being the only Eurozone economy subject to the EU’s Excessive Deficit Procedure. While reforming France’s inflexible labour laws and pension rules run the risk of provoking popular protest with strikes planned for 28 October after the holidays. The jury is out on whether Macron can achieve his objective of freeing up the economy. Since growth has returned without reform, will some of the pressure for reform evaporate?

 

It is tempting to contrast the UK, with electoral and Brexit related problems, with a resurgent France. Macron is trying to woo investment and jobs away from Britain and from the City especially and he is trying to make a French Flat White Economy come into existence which would attract further jobs and business from London.

 

But in reality the two nations are much more complementary than competitive. French  imports from the UK (6% of all UK exports worth £32 billion a year) are highly income elastic and an extra 1% of French GDP could add nearly 2% to French imports from the UK – worth £650 million. A more self confident France is also less likely to promote a confrontational outcome that could lead to a bad Brexit ending in no trade deal and multiple recriminations.

 

Though some might like to pretend it isn’t the case, a strong French economy is in most aspects good news for the UK.

 

How French GDP growth stimulates UK exports to France (NB different scales)

 

 

Douglas McWilliams, Deputy Chairman                                                                                                  

dmcwilliams@cebr.com 07710 083 652

 

and Cristian Niculescu-Marcu Senior Economist  

 

cniculescu-marcu@cebr.com 07748 161 755