Credit Impulse Update: France’s best days are already behind us

Chart of the Week: France's government reshuffle

Macro
Picture of Christopher Dembik
Christopher Dembik

Head of Macroeconomic Research

Summary:  Our 'Macro Chartmania' series collects Macrobond data and focuses on a single chart chosen for its relevance.


Click here to download the new version of Macro Chartmania – more than 80 charts (versus 60 in the previous version) to assess the evolution of financial markets and the economy.

05_CDK_1

Macron’s approval rating has recently improved on the back of the good COVID-19 crisis management, at 33% according to Kantar TNS, versus a lowest point at 21% reached in December 2018 when the nationwide Yellow Vest movement started.

In today’s edition, we focus on the French reshuffle and the challenges ahead for the new French Prime Minister Castex. The cabinet reshuffle was widely expected. It is a tradition in French politics to change prime ministers after an electoral defeat in order to give French presidencies new impetus and sometimes new direction. In the present case, a new direction is quite unlikely. The new prime minister, Castex, is a right-wing senior civil servant (close ally of former president Sarkozy), expert on health and social issues that was until past Friday in charge of the COVID reopening. In this first TV interview to TF1 as prime minister, he did not suggest a fundamental change of policy. Castex and its predecessor Philippe are both traditional conservatives: “to be able to redistribute wealth one has to produce it first”, people “can’t expect everything from the state”, pointed out Castex.

Commentators should pay off more attention to the PM’s chief of staff: In our view, the most important information is that Macron personally chose the PM’s chief of staff, Nicolas Revel, which is quite unusual. Revel is a close friend of Macron – they worked together under Hollande presidency – and an expert on health issue. This is a very clear signal that Macron wants to take more control over the reform agenda ahead of the 2022 election and that the new PM will have little or no room for maneuver.

Priorities and challenges:

Today, a first list of about 20 ministers should be unveiled. Some of the new government’s priorities have already been disclosed and include: 1) having a better dialogue with unions and local officials - something the former government struggled with; 2) finding a compromise on the hotly contested pension reform by the end of the summer, and finally 3) implementing a new stimulus package that would especially promote traineeships and apprenticeships and that should be passed by the Parliament in September.

There is no need to say that the coming weeks and months will be very challenging for the new government. France is expected to be among the worst performing economies this year in Europe. The latest Q2 figures (PMI and business climate indicators) are less bad than initially expected. Thus, we believe the recession might be slightly less pronounced than forecasted, around -11% this year versus -12.5% according to the IMF. Even if we proved to be right, there is obviously no cause for celebration. We still expect that the worst is ahead of us in terms of increase in unemployment and bankruptcies. French people are well-aware of the deteriorating outlook. According to the latest INSEE consumer survey, 78% of respondents say they are afraid of rising unemployment in the next 12 months – a level that has not been reached since June 2013.

It will be of prime importance to unveil a new stimulus package to cope with the crisis. Timing is everything especially if the economy is dealing with an unprecedented recession and hysteresis effects on the economy that are really hard to pin down, as it is currently the case. We fear that the government is taking too much time to implement a new stimulus while Germany has already unleashed a second package in June worth about 3.8% of GDP (EUR 130bn) including temporarily VAT reduction, “child bonus” and investment in e-mobility among the main measures. Germany literally gave a masterclass in fiscal stimulus which unfortunately has very little chance of inspiring France. The government considers – wrongly – that the crisis is mostly a supply-shock with means that little need to be done to stimulate demand. Therefore, most of the focus is likely to be on relocation of supply chains, new measures to provide liquidity to companies most exposed to the crisis, investment in the future (green transition) and, as mentioned previously, the promotion of traineeships and apprenticeships.

Click to enlarge.

06_CDK_1

Quarterly Outlook

01 /

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

Content disclaimer

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Bank A/S and its entities within the Saxo Bank Group provide execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer and notification on non-independent investment research for more details.

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

Apple and the Apple logo are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.