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France Country Risk Report Q4 2016

  • July 2016
  • -
  • Business Monitor International
  • -
  • 45 pages

Core Views

French economic growth will lag the rest of the eurozone over thenext two years as investment growth and external demand remainlacklustre. Meanwhile, meagre wage growth and high unemploymentmean that household consumption – traditionally the key driver ofthe economy – will become less able to support growth.France will experience a temporary terms of trade boost in 2016 and2017 which will keep its trade deficit from expanding significantly.Beyond 2017, the structural inefficiencies of the French economywill result in an expansion of its trade and current account deficits.While France will benefit from a cyclical economic upswing in theeurozone, it is too early to tell if improving economic conditions willbe enough to save President Francois Hollande from elimination inthe first round of the presidential election.We expect the 2016 budget, which is the last to be submitted byHollande before the presidential election, to fall short of its deficitreduction targets as expenditure cuts are insufficient to outweighthe proposed tax cuts.Although we are likely to see a gradual increase in positive rhetorictowards structural reforms, Hollande is unlikely to become an ambitiousreformer of the French model. While we expect some reformerswill take baby steps in the right direction, the ability of Hollande toimplement sweeping reforms will be restrained by divisions withinhis own party and core support base.Major Forecast ChangesOn the back of Brexit induced uncertainty, we have revised our realGDP growth forecasts down. We now forecast France's economyto expand by 1.3% in 2016, down from 1.4% and by 0.9% in 2017,from previously 1.4%.In particular, fixed investment and export growth will plunge due tolow confidence across the board.

Table Of Contents

France Country Risk Report Q4 2016
Executive Summary. 5
Core Views5
Major Forecast Changes..5
Key Risks..5
Chapter 1: Economic Outlook 7
SWOT Analysis.. 7
BMI Economic Risk Index 7
Economic Growth Outlook. 8
Brexit Dashes Growth Outlook8
France's fragile economic recovery will falter in 2017 on the back of weak UK demand and plummeting confidence levels domestically.
French exporters and fixed investment will take the biggest hit.
GDP By Expenditure Outlook 9
TABLE: 10 YEAR GDP FORECAST..9
TABLE: PRIVATE CONSUMPTION FORECASTS.9
TABLE: GOVERNMENT CONSUMPTION FORECASTS..9
TABLE: FIXED INVESTMENT FORECASTS.10
TABLE: NET EXPORTS FORECASTS..10
Fiscal Policy And Public Debt Outlook 10
ECB Support Crucial For Fiscal Outlook10
Rising nominal growth and European Central Bank (ECB) easing will help stabilise France's public debt load in the coming years, while
allowing for a gradual reduction in the fiscal deficit even as significant austerity measures are avoided. However, the public finances are
ill-equipped to deal with any future shock, implying a continued role for the ECB over the coming years.
Structural Fiscal Position. 11
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES..12
TABLE: FISCAL POLICY..12
External Trade And Investment Outlook. 13
Loss Of Competitiveness Weighting On Export Growth..13
Slower global trade growth due to emerging market weakness will negatively impact French exporters in the quarters ahead. A bright
spot will be the tourism sector amidst recovering international arrivals after the terrorist attacks in 2015 and the 2016 UEFA European
football Championships competition.
Outlook On External Position. 15
TABLE: BALANCE OF PAYMENTS16
TABLE: TOP 5 GOODS IMPORTS .16
TABLE: TOP GOODS EXPORTS 16
Regional Outlook 17
Brexit Contagion Could Reignite Eurozone Crisis17
The UK vote to leave the EU on June 23 will act as a significant drag on domestic and regional growth in the coming year. However, in
terms of systemic risks to the global economy, a deeper crisis would be much more likely to emerge from the eurozone as opposed to
the UK, via political contagion or banking sector instability. We highlight Italy as a potential next epicentre of instability. 17
Chapter 2: 10-Year Forecast. 21
The French Economy To 2025.. 21
Weak Growth In The Decade Ahead..21
The French economic model is looking increasingly threatened over the coming decade, with tepid growth, rising debt loads and
persistent unemployment expected to characterise the country's long-term outlook. Despite this somewhat bleak prognosis, we highlight
that we expect France to outperform relative to most of its regional peers.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.21
Chapter 3: Political Outlook. 23
SWOT Analysis 23
BMI Political Risk Index. 23
Domestic Politics.. 24
Brexit Polarising French Politics Further..24
Following the Brexit vote, France's political landscape in the run-up to the presidential elections in April 2017 will become increasingly
polarised, with parties on both the far left and right calling to change Paris' relations with Brussels.
TABLE: POLITICAL OVERVIEW .24
Long-Term Political Outlook.. 25
Stagnation And The Far Right To Pose Biggest Challenge:..25
Political risk in France will remain elevated over the coming decade, with the rise of the far-right, spurred by perceptions of mass
immigration from Muslim nations, among the most pressing issues facing the country's politicians. Moreover, a stagnant economy -
hindered by a lack of reform momentum and an ageing population - will also ensure that the risk of social unrest or extremist parties
gaining influence remains prominent over the coming decade.
Chapter 4: Operational Risk. 29
SWOT Analysis 29
Operational Risk Index.. 29
Operational Risk. 30
TABLE: DEVELOPED STATES - LABOUR MARKET RISK..30
TABLE: DEVELOPED STATES - LOGISTICS RISK.34
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK..37
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK39
Chapter 5: BMI Global Macro Outlook 41
Global Macro Outlook. 41
Brexit Risk Casts A Long Shadow..41
TABLE: GLOBAL ASSUMPTIONS..41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %..43
TABLE: MACROECONOMIC DATA and FORECASTS.45

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