Why Macron’s Reform Agenda Is Boosting Business Optimism

Market observers have long blamed France’s labor code and other policies for the country’s slow growth and high unemployment. Yet, Katrina Dudley, portfolio manager, Franklin Mutual European Fund, sees a renewed sense of business optimism in France under President Emmanuel Macron. She also thinks Macron’s eurozone proposals could make an attractive long-term investment case for select European equities.

In recent years, France has lagged its larger European Union (EU) peers in terms of economic growth. In 2016, the French economy grew by 1.2%, compared with growth of 1.9% for Germany and 1.8% for the United Kingdom. And France’s unemployment rate has been stuck at around 10% for four years. It is now roughly double the rate of those two other European countries.

Yet, we see signs that France’s economy is starting to improve under President Emmanuel Macron. France is enjoying its best streak of economic growth in more than six years. And, French companies are hiring at the fastest pace in almost 17 years. Also, the International Monetary Fund (IMF) has said France will likely replace the United Kingdom as the world’s fifth-largest economy in 2017.1

Why French Companies Are Optimistic about Macron’s Reforms

In our view, French companies are more optimistic than in the past about hiring employees due to Macron’s efforts to loosen the country’s labor code. In September of this year, he signed five decrees overhauling the labor code, the first major economic reforms since he took office in May.

Among other things, the labor decrees give French employers more say in negotiating contracts directly with workers. For decades, most French companies have had to follow restrictive union labor agreements based on their sectors.