France Election Review and Outlook

The Centrist candidate Emmanuel Macron won the first round of the French Presidential election. The Eurozone markets reacted positively to this result as there were fears about the rise of the far-right Nationalist.

The French election was quite a significant event for the Eurozone because France makes up 15% of the GDP. Recently the Euro has been losing ground against the USD and other major currencies. This has largely been contributed to events such as the Greece crisis, weaker economies in the EU and low interest rates from the ECB.

The socialist administration under Hollande was not successful in managing the French Economy. Hollande’s administration only managed to achieve an average of less than 1% economic growth. Unemployment rose to over 10% compared to other major European economies that average around 4%.

Market Reaction

Immediately after the election result was announced the markets went into a relief rally, investors were not overly enthusiastic about Macron but the feeling was that he is the least bad option amongst the candidates.

· Euro remained strong amongst major currencies.

· Investors began to buy French Bonds, preferring them over German Bunds.

· European Stock Indices closed Higher FTSE 100 recovering 2.1%, FTSE 250 rose more than 1% to close at record high, DAX up 3.3%. (24 April)

· In Asia the Nikkei 225 ended up 1.4%.

Outlook

Political Risk in the Eurozone remains a major issue, after Brexit, Euroskepticism is on the rise, Globally Globalization and neoliberalism is being questioned. Social unrest is still France’s biggest risk. Surveys have revealed that French voters no longer believe that democracy works for them, the people no longer have faith in the political system. The rise of uneducated migrants from Africa has increased the social obligations of the French Government and this has made them increase taxes to meet expenditures resulting in an exodus of young entrepreneurs and French citizens.

· 2017 GDP growth forecast for France is 1,4% , Eurozone 1.6%.

· Inflation France France 1,5%, Eurozone 1,7%.

· Unemployment Rate France 9,9%, Eurozone 9,6%.

· Investment Growth Eurozone 2.9% growth.

Domestic Demand will continue to stimulate growth in the Eurozone through low Financing costs as the ECB has kept Interest Rates low over the next fiscal year. The overall outlook for Europe is positive as recovery is expected to continue Unemployment is expected to drop from 8.5% to 8.1% in 2017. Public deficits are expected to decline from 1.7% of GDP to 1.4% this decline is mainly due to increased tax contributions and a decrease in social spending by governments.

Uncertainty will remain because of the UK’s move out of the EU and how the other countries react to this. The growing sentiment of Nationalism is a concern as we saw with the rise of Le Pen in the France election. The latest reports do indicate that in the short-term all other 27 states in the EU shall remain united.