How France’s Economy is Growing and Reforming

France’s economy looks to be on the up recently, following growth in several areas over the first two quarters of 2017. Developments in the country’s employment rates, as President Macron makes steps towards reformation, may also lead towards positive growth for the country.

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The second largest economy in the Eurozone, France experienced economic growth of 1.9% in the second quarter, following the upward trend that was observed in the previous two quarters. One driver of this upward growth is a high level of foreign demand for French exports. Export levels increased by 10% in the second quarter of 2017, the highest level in four years, following a rise of only 3.4% in the first quarter. The increase in exports was nearly seven times higher than that of imports, which rose by 1.5% in the second quarter. Although also up by 2.7% in the second quarter, gross fixed capital investment growth was down on the first quarter when it hit 5.4%, its highest level since 2011.

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Progress is also being made in France’s labor market. President Macron has put measures in place in the hope of tackling the country’s growing unemployment issues. In a move to make it easier for companies to negotiate agreements in-house concerning employee wages and working conditions the labor reforms will limit the power of unions to a certain degree. Further efforts have been announced to encourage companies to offer more permanent contracts than they currently do with caps being placed on the payments that can be imposed during tribunals over unfair dismissals. Previously tribunals were able to set high rates of payments in unfair dismissals claims and the hope is, with these rates capped, fewer companies will offer temporary contracts to employees. In another attempt to raise employment levels the government intents to make changes to the unemployment benefits system and reduce payroll taxes. These steps, although controversial, should stimulate higher employment.

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As Macron’s policies are put into place it awaits to be seen how they will affect the employment sector. The outlook is generally positive with levels of unemployment falling, however, unions currently still hold a high level of power, working with employers to set national wage rates. The result is that, for many companies, the wages they pay their employees are out of line with productivity levels. Overall, the country appears to be in a period of upheaval, with upward economic growth over the past three quarters and positive developments within France’s employment sector.

The EU Markets Relief Rally

The first round in the French presidential election was held on the 23rd, with Emmanuel Macron and Marine Le Pen coming out in front, winning 24% and 21.% of the votes respectively. Le Pen is a right-wing candidate from the National Front party who is opposed to the euro and France’s place in the European Union. On the opposite side, Macron, who is currently leading in the polls, is a former investment banker who left the socialist party to found a centrist political party, En Marche!, and supports gobalization and a stronger European economic union.

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European markets have seen some dramatic changes in the wake of this first electoral stage. Following Macron’s victory France’s CAC 40 index increased by more that 4%, reaching a nine year high. Germany’s DAX, an index consisting of the 30 major German companies, had climbed by 3.3% by the time the markets had closed, while the FTSE 100 in London rose to 7,264, recovering by 2.1% after a drop last week following the announcement of the UK general election.

The euro was also positively affected by the results, jumping a huge 1.5% to a value of $1.09. This increase has meant that the shares of European banks have risen to their highest level since December 2015. French bank, Credit Agricole, saw share prices rise by 10.86% while Barclays in the UK was up 5.4%. However, it is believed by many experts that the substantial increase in euro value, a five-and-a-half-month high against the dollar, may be no more than a one-day wonder, with currency analyst at MUFG Lee Hardman saying, “Now that the initial adjustment higher has taken place, we do not expect the French elections to have much further impact on the euro in the near-term.” While the euro had a good day sterling had its worst day against it since October last year, down 1.3% following the election results.

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The effects of the election have been felt outside of the EU as well. Asian markets are experiencing a second day of gains, having reacted quickly to the result of the weekend. The Japanese index Nikkei 225 was up 0.4% on the morning of the 24th, while the Kospi index had increased in value by 0.1%. Closer to home, all three main US share markets have increased more than 1%, with the Nasdaq index reaching a record high, having appreciated by 1.2%, when markets closed on Monday 24th.

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After the unexpected results of the Brexit vote and the election of Donald Trump it is unwise for people to take for granted the fact that Macron will win the second round of the election on the 7th May. Nonetheless, recent polls have shown that he is the firm favourite to win, a result which would guarantee France remains a member of the European Union.