Chart of the Week: France's government reshuffle

Macro

Christopher Dembik

Head of Macro Analysis

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.

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.

Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.