L’exception française

There hasn’t been a French presidential election in a long time that created so little interest outside of France, and arguably inside of France as well. One (obvious) reason behind th e low level of interest in the election is the war in Ukraine and the geopolitical re-orientation , that is absorbing most of the attention in the rest of Europe and elsewhere. Furthermore, at least until recently , polls point ed to President Macron as likely to win a new term in the Elysée and a continuation of the political status quo. A final reason for the rather low degree of interest is th e fact that the French economy has performed relatively well during the pandemic and in particular the labour market – usually the weak spot of the French economy – has developed quite dynamically for years now. Thus, at least on a relative basis , there seems little reason to worry about the French economy. But this is not to say that all is fine and that there are no long-term macro-economic issues simmering in the back , that remain relevant for assessing the medium-term outlook for the French economy. One such issue is the export performance of the French manufacturing sector that remains subpar and the lasting current account deficit. Second, the fiscal position, while clearly less challenging than in some other euro area countries, has deteriorated further and, together with a continuing current account deficit , has led to a steady deterioration in the French international investment position. None of this has necessarily reached an explosive dynamic. But it will imply, if it continues unchecked, a similar steady transfer of income abroad and less and less financial room for maneuver for the public and private sector. Finally, there is the urban rural divide in economic and political terms. Disproportionate job losses in areas outside the big urban centers as a consequence of a shrinking manufacturing base have, at least partially, been feeding political populism and contributed to political polarization for a long time. Some of those underlying structural problems may become less challengin g . For one, the gradual de- globalisation seen in many areas will be less challenging for the French economy than most of its European peers. This is also true when it comes to energy independence vis-à-vis Russia. Furthermore, the steady decline in unemployment – which we view as a genuine sign of a more flexible labour market – should, at least at the margin, work against a further political polarization. In sum, there remain a lot of structural challenges for the next president. But these challenges look by no means bigger than the ones the German chancellor or the Italian and Spanish Prime Minister face.