France has dominated the headlines since the terrorist attacks on satirical magazine Charlie Hebdo earlier this month. The ensuing debate has raised a number of issues that are key to France’s future, many of which relate in one way or another to better overall economic growth — something that is sorely needed, since France is expected to grow no more than a meager 0.5% for the third year in a row. Can France turn things around?
New Regulation Could Spur Change
In a few weeks, the French government will vote on an important series of economic reforms designed to invigorate the country’s private sector. If these measures are passed, investors like Stuart Quint, senior investment manager and international strategist at Brinker Capital, believe that France stands a real chance of being able to turn things around for a better economic future.
Among the measures announced by France’s economy minister, Emmanuel Macron, in October, are a number of provisions to make France’s notoriously rigid labor market more flexible. These include the longstanding, contentious issues of letting businesses operate on Sundays and opening up more protected professions.
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The new laws, if they pass, would also make it easier for companies to hire and to fire personnel, even if progress on this front will take a long time to come close to the U.S., and the U.K., said Quint. In his view, though, these measures are necessary to spur the corporate sector and then kickstart economic growth in France.
“As regulation now stands, France is not a very encouraging place for companies to do business,” Quint said. “The 35-hour work week, for instance, and the fact that three-quarters of hires are coming from temporary contracts, makes it very difficult for businesses of any size to have a bullish outlook on France.”
Although the latest polls do indicate that the measures will pass as they stand, Quint is unsure that will be the case. A more diluted version of the laws could help French business, which unlike businesses in other European countries, are not constrained in borrowing. However, to have an impact on economic growth, business confidence must pick up, Quint said, and for that, regulation really must change.
Weak euro to help French exports
France has always had an edge in certain sectors such as luxury goods and packaged consumer staples. With a weaker euro, these stand to gain further, said Quincy Krosby, market strategist at Prudential Financial, as will other French exports, further aided by the European Central Bank’s just-announced E1 trillion quantitative easing package.
“Everyone thinks of Germany as a major export machine but France’s export sector is also important, and the weaker euro will be a catalyst for French exports, even if these are dependent on demand both from Asia and from the Eurozone itself,” she said.
The weaker euro will also help other sectors of the French economy, notably tourism, said Tom Elliott, chief investment strategist at the deVere Group in London. “Any country that relates currency to the dollar will suddenly find it cheaper in Europe, and France is the world’s leading tourism destination,” he said.