Analysts at Berenberg have warned of a growth fallout from the shock outcome of this weekend’s French elections.
The left and centrist factions of France’s political class combined to deliver a major blow to Marine Le Pen’s populist National Rally party, with the prospect of a hung parliament now emerging.
To the surprise of nearly everyone, a loose alliance of leftist parties under the New Popular Front won the most seats in the election, but with no single party gaining an absolute majority, political deadlock seems inevitable.
This is not the absolute worst outcome, reckons Berenberg- that would have been an absolute majority for the hard-right National Rally. But the outcome nonetheless raises fiscal problems and a likely reversal of Macron’s pro-growth reforms.
“Although French voters did not grant a majority to either the (National Rally) or the spendthrift left, the election result is still negative for France in two important respects,” wrote Berenberg’s chief economics Holger Schmieding.
“First, it spells the end of Macron’s pro-growth reforms. Instead, the centrists will almost certainly have to accept some reform reversals (eg a potential softening of Macron’s crucial pension reform) and possibly progressive tax hikes demanded by the left in order to pass a budget.
“Second, it threatens to exacerbate France’s fiscal problems. After a deficit of 5.5% of GDP last year and a similar shortfall this year in the absence of any corrective action, France will struggle to pass a 2025 budget that complies with EU fiscal rules.”
France is also at risk of credit deratings, inflation and a “less favourable reputation among global investors”, warned Schmieding.