The Eurozone’s second-largest economy is outpacing Germany and the region as a whole, as the French economy is excelling in weathering blows from trade wars and weaker global momentum. Some of this positive development is due to fortuitously timed tax cuts and less reliance on exports, but it also shows that French President Emmanuel Macron’s unpopular reform agenda may finally be paying off. “With respect to economic policies, we have an all thumbs up for France,” said Florian Hense, a European economist at Berenberg Bank in London. “Whether it’s Germany in the early 2000s or France now, the labor market is actually key for all layers of the economy.”
The robust business investment following Macron’s corporate-tax cuts, and increases in employment after changes to labor laws support the widespread view that there’s more to the story than only the question of timing. And with Germany apparently slipping toward recession, the awakening of the French economy could have wider policy implications for the EU by giving the French president political capital to push his agenda. Macron’s European agenda includes particularly a more active industrial policy and building European champions to rival the US and China, and more sharing of resources between member states.
The first signs of the tide turning in favor of Macron is his relative success with an agreement on a Eurozone budget, albeit far smaller than his initial ambitions, and also the emboldened French officials no longer shy of lecturing their German peers on their national fiscal policy. France has also seen more foreign investment flocking into the country, while its businesses have also continued spending as they are less exposed than German companies to the risks due to the volatile global trade environment. Still, despite the growing optimism in France, the country still has some way to go before it can truly measure up to the German economic powerhouse. The infamously vast and costly French public sector still weighs heavily on its economy’s resilience, with the government spending 56% of annual economic output compared with 45% in Germany, and also its improving unemployment rate is still more than double the rate in neighboring Germany.
