Core Views
France’s economic recovery continues to prove broad-based, with industry and manufacturing supporting the already strong recovery
in private consumption. That said, we believe French growth has peaked and with fiscal austerity set to become more pronounced next year, we see slower growth in the coming quarters. We expect pressures on the government to engage in more concerted fiscal consolidation to mount over the coming quarters, particularly following elections in early 2012. While France has thus far not fallen prey to the bond vigilantes like the peripheral countries of the eurozone, the country nonetheless has one of the largest public sector debt piles in Europe and remains susceptible to contagion effects.
We see little scope for ex-IMF chief Dominique Strauss-Kahn to run in next year’s election. As a result, the race is set to prove a close affair, but we still foresee a Socialist party candidate clinching victory.
Major Forecast Changes
We have upgraded France’s real GDP growth forecast for 2011 to 2.2% from 1.7% previously on account of the country’s broadening economic recovery.
Key Risks To Outlook
Upside Risks To Growth Forecast: Should the recovery continue to broaden in nature and facilitate less aggressive fiscal austerity over the coming years, this would leave France on a stronger growth path.
Downside Risks To Fiscal Forecast: There is a risk that the next administration fails to adequately tighten fiscal policy in the aftermath of elections next year. This would not only place our fiscal deficit forecasts into question but could raise the borrowing costs for the government via higher sovereign bond yields.
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Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
Election A Much Closer Affair
While serious doubts now surround the charges of alleged sexual assault brought against former IMF Chief
Dominique Strauss-Kahn in the US, we still do not see much potential for him to run as a candidate in next
year’s French presidential election
Table: Political Overview8
Long-Term Political Outlook 10
A Tumultuous Decade Could Lie Ahead
We expect several dynamics to come to the forefront of France’s political scene in the coming decade
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
Recovery Holding Up But Signs Of Slowing
France’s economic recovery remains broad-based in nature, with leading indicator data showing a continued
expansion in industry and manufacturing alongside gradually improving private consumption dynamics
Table: ECONOMIC ACTIVITY14
Balance Of Payments 15
Fiscal Austerity To Rein In C/A Deficit
We hold to our forecast for France’s current account deficit to widen to 25% of GDP in 2011, up from 17% in
2010, as a result of higher energy import costs and strong private consumption this year
Table: CURRENT ACCOUNT16
Fiscal Policy 17
Public Debt Susceptible To Contagion Risks
We hold to our view that pressure on the French government to cut the budget deficit will continue to mount
over the coming quarters
TABLE: FISCAL POLICY18
Regional Monetary Policy 19
ECB Tightening Still On
Having held fire on altering policy rates since the last hike in April, the European Central Bank raised the
refinancing rate by 25 basis points to 150% on July 7
Chapter 3: 10-Year Forecast 21
The French Economy To 2020 21
Staying As Eurozone’s Consumption Engine
The French economy over the next decade will be characterised by weak growth, as both the private and public
sectors focus on paying down debt accumulated during the past decade
Table: France Long-Term Macroeconomic Forecasts21
Chapter 4: Business Environment 23
SWOT Analysis 23
BMI Business Environment Risk Ratings 23
Business Environment Outlook 24
Table: BMI Business And Operation Risk Ratings24
Table: BMI Legal Framework Rating25
Market Orientation 26
Table: Labour Force Quality26
Table: Trade And Investment Ratings27
Table: top export destinations27
Chapter 5: Key Sectors 29
Telecommunications 29
Table: Telecoms Sector – Mobile – Historical Data And Forecasts 30
Table: Telecoms Sector – Internet – Historical Data And Forecasts 30
Table: Telecoms Sector – Fixed Line – Historical Data And Forecasts 31
Other Key Sectors 32
Table: FRANCE Autos Sector Key Indicators32
Table: FRANCE Oil and Gas Sector Key Indicators32
Table: FRANCE Infrastructure Sector Key Indicators32
Table: FRANCE Pharma Sector Key Indicators33
Table: FRANCE Defence and Security Sector Key Indicators33
Table: FRANCE Food and Drink Sector Key Indicators33
Chapter 6: BMI Global Assumptions 35
Global Outlook 35
Second Half Risks
TABLE: GLOBAL ASSUMPTIONS35
Table: EMERGING MARKETS AGGREGATE GROWTH36
Table: DEVELOPED STATES REAL GDP GROWTH FORECAST37
Table: REAL GDP GROWTH CONSENSUS FORECASTS37
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