Last Sunday’s French presidential election brought the liberal Emmanuelle Macron back to power in the second round with 58.5% of the vote, a number better than poll estimates.
For example, the far-right Le Pen won 41.5% of the French vote, a fact which it failed to win but is crowned as its best result in presidential election history.
In this way, and although it will be Macron who will be back at the Palais de l’Élysée for the next five years, the day of the vote that gave him victory has in truth been marked by the highest abstention than 50 years in France.
So, and while markets have no doubt been relieved by the re-election of European Macron, the truth is that the social polarization of the old continent neighbor is worrying and all eyes are now on June’s general elections.
“Macron was re-elected as President; However, the main contenders’ poor overall result in the first round will likely affect their position. Some statements of his inclusion speech (“Leaving no one on the road”, “Turning France into an ecological nation”) illustrate how the change from “moderate reformer” in 2017 to “interventionist” had to be carried out under the pressure of the pandemic and the Consequences of the war in Ukraine will have to last until his second term in office,” says Gilles Moëc, chief economist at mutual fund manager AXA Investment Managers.
“In order to find some financial leeway now that the normalization of the ECB is reducing the options for expansionary fiscal policy at the national level, we expect Emmanuel Macron to push even harder for a second phase of debt mutualisation in the EU.”
“We assume that things will go uphill. Paradoxically, Olaf Scholz’s weaker position (the usefulness of the “Zeitenwende” speech is rapidly fading) may make him less open to concessions in this direction, while the relief brought about by the defeat of M. Le Pen in the capitals Impetus to reopen can reduce this particular Pandora’s box. Macron’s bargaining power in Europe will of course depend on whether he can win a parliamentary majority in June,” the expert continued.
Macron’s re-election positive for the French market and economic continuity
In this context, the manager Amundi has also described the re-election of the centrist Macron as positive for French fortune.
In this way, his experts indicate that the challenge for Macron over the next five years is to strengthen the French economy and its competitiveness, based on its better position than other eurozone countries due to low dependence on Russian gas, as and dealing with significant dissatisfaction with the political class.
“In this sense, the need to retain a parliamentary majority in the general elections scheduled for June will be crucial to the implementation of their economic policies. At the European level, the re-election of the French President reinforces his vision of a sovereign Europe with a more unified EU foreign and defense policy and greater energy independence in the future,” Amundi clarifies.
In terms of investment implications, from the manager’s perspective, although Macron’s win was somewhat expected by markets, the election result removed a key risk. “For fixed income, reduced political uncertainty could correct OAT bond yields by about 10 basis points versus Bund. The re-election is also positive for the EUR-USD exchange rate as well as for French stocks, which offer attractive valuations in relative value,” they point out.
“This victory ensures the country a certain degree of economic and political continuity, as well as important support for the integration process in the EU and ensures cooperation within the Union. Short-term support for the implementation of sanctions against Russia also seems assured,” explains Cristina Gavín, Head of Fixed Income and Investment Fund Manager at Ibercaja Management.
“Emmanuel Macron’s re-election for a second five-year term as President implies political continuity in France, with progress on the economic and green agenda, possibly further integration with the EU and a renewed attempt to tackle economic reforms and the pension system. Over the next month, Emmanuel Macron will form a new government and appoint a new prime minister. He has previously suggested that he could appoint a woman and it will likely be someone with political clout to implement upcoming reforms,” he says. For his part, Pietro Baffico, an economist from abrdn.
The market reaction was limited
“However, market reaction has been limited and the central scenario has been the current President’s victory, according to the latest polls. Of course, the proximity to the general elections in June and the difficulty of implementing his program in a divided parliament are major sources of uncertainty for the coming months,” says Gavín, adding that in this scenario the premium for France is risked in early April on a 2 -Year high of 55 basis points had ostensibly improved to 44 basis points in the past few days.
“In the coming weeks, it should continue its tightening trend towards the 40 basis point zone, but due to the uncertainties we have been discussing and still in the air, it will be difficult to break below it. In any case, the global deterioration in confidence that we have seen in recent days as a result of the slowdown in activity has meant that the week has started in risk aversion mode with sharp falls in equity markets, leaving the French election results in been pushed into the background,” he emphasizes.
All eyes are now on the national elections in June
But alongside that narrow Macron victory over Le Pen, the truth is that all eyes are now on the Gallic country for next June’s general elections, which will be held on the 12th and 19th of this month.
The numbers resulting from this vote can make Macron’s governability easier or, on the contrary, more difficult.
At Scope Ratings, Thomas Gillet, Associate Head of Sovereign Ratings and the Public Sector, explains that “The outcome of this election will therefore be crucial in assessing the real dynamics of its reform program. Weakening citizen support would force a postponement or reduction of reforms that are critical to France’s credit prospects.”
“Winning an absolute parliamentary majority would make things more difficult for La République en marche (LREM) in the national elections in June and probably make some compromises on the reform agenda inevitable. At the local level, the traditional centre-right and centre-left parties continue to enjoy strong support, as shown by the 2021 regional elections, while Macron’s personal popularity is now lower than it was in 2017. And the far-left and far-right parties already have in their respective Camps called for unity to limit Macron’s party in general elections,” Baffico comments, adding: “In the second round campaign, Macron aligned himself with the Left and Green voters.” It remains to be seen how the campaign progresses ahead of the general elections in June. Without a majority in the National Assembly, Macron will have a hard time passing his program, especially on pension and employment reforms.”
“France’s next government must address structural economic and social challenges such as rising public debt, falling productivity and competitiveness and remaining rigidities in the labor market, as well as rising care costs, the country’s aging population and the energy transition. All this in the context of higher inflation and the effects of the war in Ukraine,” Gillet points out.
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