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France Country Risk Report Q2 2016

  • January 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 we expect the structural inefficiencies of the Frencheconomy to result in an expansion of its trade and current accountdeficits.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.Changes To ForecastsWe maintain our current GDP forecasts for 2016 and 2017, atUSD2.42trn and USD2.57trn respectively.In light of a downward revision to our oil price forecasts, reducing theenergy import bill, we have modestly narrowed our current accountdeficit forecast from 0.7% to 0.2% of GDP in 2016.

Table Of Contents

France Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Changes To Forecasts 5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Lack Of Investment And Labour Market To Restrain Growth8
French economic activity will not reignite in 2016 and 2017, with private consumption remaining the sole growth driver The country's
rigid labour market, high labour costs, and lack of investment will continue negatively to impact our growth forecasts for the years to
come
GDP By Expenditure Outlook 9
TABLE: 10 YEAR GDP FORECAST9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook 11
Defence And Unemployment To Drag On Deficit11
France's loose and expansionary fiscal policy will extend well into 2016 and 2017, as the government fails to keep public expenditure
under control The country's beefed - up security and defence spending, as well as high structural unemployment, will push France's
public debt above 100% of GDP and keep its budget deficit over 30% over the coming years
Structural Fiscal Position 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES13
TABLE: FISCAL POLICY 13
External Trade And Investment Outlook 14
Favourable External Factors Not Enough For France's Export Sector14
Low oil prices and the depreciation of the euro will not compensate for France's declining competitiveness in export-oriented sectors
The current account balance remains in slight negative territory in the years to come, due also to increasing imports amidst a recovery
in domestic demand
Outlook On External Trade 15
TABLE: BALANCE OF PAYMENTS16
TABLE: TOP 5 GOODS IMPORTS IN 201416
TABLE: TOP GOODS EXPORTS IN 201417
Regional Monetary Policy 17
ECB: Underwhelming But Still Substantial Easing17
The ECB's monetary policy easing on December 3 disappointed markets in terms of its depth and breadth However, strengthening
economic and inflation conditions in the eurozone suggest that the ECB may be better off holding fire, and in our view, the easing is still
fairly significant despite disappointment on the headline figures We continue to forecast a weaker euro in 2016
Chapter 2: 10-Year Forecast 21
The French Economy To 2025 21
A Difficult Decade21
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 FORECASTS21
Chapter 3: Political Outlook 23
SWOT Analysis 23
BMI Political Risk Index 23
Domestic Politics 24
Regional Elections: FN Remains Empty Handed24
The Front National's failure to secure any region in France's second- round regional elections on December 13 underscores the
difficulties it faces in entering the political mainstream Although the election results are a sign of relief for President François Hollande,
high unemployment and the poor state of the economy continue to jeopardise his prospects of getting through to the second round of
presidential elections in early 2017
TABLE: POLITICAL OVERVIEW 24
Long-Term Political Outlook 26
Rising Populism To Increase Instability26
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
Chapter 4: Operational Risk 29
SWOT Analysis 29
Operational Risk Index 29
Operational Risk 30
TABLE: DEVELOPED STATES - LABOUR MARKET RISK30
TABLE: DEVELOPED STATES - LOGISTICS RISK34
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK36
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK39
Chapter 5: BMI Global Macro Outlook 41
Global Macro Outlook 41
Unfinished Business In 201641
TABLE: GLOBAL ASSUMPTIONS41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %42
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %43
TABLE: FRANCE - MACROECONOMIC DATA and FORECASTS45

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