Crisis of confidence should frighten French

True story. I was sitting on a park bench in Paris' Jardin des Tuileries on Tuesday lunchtime, minding my own business, when I was rudely asked to move on by a model and her photographer.

Crisis of confidence should frighten French


I did, reluctantly, and from my new spot saw the model take second fiddle to a designer handbag and an expensive looking gold necklace.

A prosperous picture in an affluent part of town, my point is that the truth is often hidden behind the superficial. Record unemployment and low consumer confidence are the big headlines coming out of the city this week as France slumped into recession with its economy having shrunk by 0.2% in Q1.

Making my way back to a nearby conference, that afternoon’s panel of expert investors said surprisingly little about recession, instead focusing on whether or not Greece and other peripheral nations will exit the euro.

So, what does it matter that Europe’s second-largest economy is struggling? It shouldn’t be of great surprise, not least to its citizens, a majority of which it seems have taken against Francois Hollande since he took office.

French flirts

For Didier Saint-Georges, member of Carmignac Gestion’s investment committee, France has been flirting with recession for the past two years.

He explains: “The GDP slowdown is not due to courageous reforming actions which would have been taken for the good of the long term. It is due rather to a dwindling confidence in the future by French consumers and investors. The tough reforms still lie ahead.

“France’s current account, i.e. its capacity to control its external debt, keeps worsening when that of most of the countries in the eurozone is improving. France urgently needs to boost the competitiveness of its economy.”

Still, with large public debts, a sluggish consumer and high unemployment, you could be talking about most of Europe, including the UK of course.

Eurozone woes have of course also created opportunities, and European equities remain incredibly popular for professional fund pickers.

Coutts for one has recently reversed a longstanding underweight to the asset class, despite noting that France – among others – has let its budget deficit targets slip. European chief investment officer, Norman Villamin, is looking to European equities to play “catch-up” having so far underperformed this year, though he is more excited by investment opportunities in Italy and Germany.

“We think the more economically sensitive (cyclical) and capital-intensive companies stand to benefit most as monetary policy shifts in favour of debtors and fiscal policy moves towards boosting investment,” he says.

Political worries

The state of the French economy is always going to have a big influence on the fate of the Euro Stoxx 50 given its fair share of index constituents across different industries, including BNP Paribas, Carrefour, GDF Suez, Sanofi and Total S.A. However, these are globally diversified and fund pickers are unlikely to take a punt on France in isolation, unless they hold the CAC 40 directly.

The major worry in France is a political one. In a ‘non’ man’s land between full-blown austerity and growth, and with a need for social-liberal reform, outsiders remain confused about what its government stands for… and so it seems do the French people.

As Mirabaud’s Macro Bruzzo told us last month: “France has lost confidence as a country. There is mistrust regarding its future, it is dominated by perpetual elements of crisis against which our politicians are helpless to rectify”.


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