France’s next government to inherit resilient growth – BNN Bloomberg

(Bloomberg) — France’s economy is expected to maintain steady growth this year, easing the budget challenges facing the new government after early elections that failed to deliver any results in parliament and created huge uncertainty about future fiscal policy.

Gross domestic product will expand by 1.1% in 2024, matching last year’s pace, according to forecasts published by Insee, which predicts a boost after the Summer Olympics in Paris. Growth in consumer spending is set to accelerate, helping to offset a decline in business and household investment.

Still, the statistics office warned on Tuesday that much of its analysis is largely based on indicators from before President Emmanuel Macron dissolved parliament on June 9 and does not take into account the potential impact of various fiscal measures.

The resilience of France’s economy is a key asset for any new government, which will immediately face negotiations with the European Union on how to curb its budget deficit. The current administration’s plans are based on 1% growth, a forecast previously seen as optimistic, compared with the 0.8% predicted by the International Monetary Fund.

How to manage France’s finances was a central theme of the short, tumultuous election campaign, with the left proposing a huge spending increase and even Macron’s party promising more. The noise over fiscal policy and the possibility of Marine Le Pen’s far-right National Rally taking power have worried investors, who have dumped French assets. A poll of voting intentions taken after polls closed on Sunday shows Le Pen will win the first round of the next presidential election in 2027.

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Expenditure declarations

With a hung parliament, it is unclear how many of the spending promises will survive. The left-wing New Popular Front alliance has the largest group of seats in the lower house and is demanding implementation of its agenda, but would likely have to make huge compromises to form a coalition capable of governing.

“A withdrawal from supply-side policies in order to return to demand-side policies would be an irreversible economic mistake,” Finance Minister Bruno Le Maire warned at a briefing with reporters. “We must stop any return to the past or any questioning of these supply-side policies by a relative majority in the National Assembly.”

Insee said that in addition to budget uncertainties, the next political context was likely to change the behavior of households and businesses. Movements in financial markets that have raised borrowing costs could mean companies take a “wait and see” approach to investing, he added. French shares fell for a third day in a row on Tuesday as investors awaited guidance on the next government.

“The political developments in France pose significant risks” to the growth scenario, Insee said.

Rating agency Moody’s Investors Service warned in a separate report that if France’s fiscal and debt indicators deteriorate significantly as a result of political wrangling, the rating of the eurozone’s second-largest economy could also be at risk.

(Corrected data for Q4 2023 and Q1 2024 in the chart after the second paragraph)