2013-02-19 10:07:32 - Fast Market Research recommends "France Business Forecast Report Q2 2013" from Business Monitor International, now available
France's economy is showing signs of a sharp economic slowdown in light of the deteriorating global macroeconomic backdrop, and while a return to recessionary conditions remains outside our core view for now, we note that the French economy and, in particular the domestic banking sector, are highly susceptible to a further intensification of the eurozone sovereign debt crisis.
We expect pressure to mount on the government to engage in more concerted fiscal consolidation in 2013, particularly given the minimal fiscal adjustment undertaken in 2012. While France has thus far not fallen prey to the bond vigilantes as has happened to the peripheral countries of the eurozone, the country has one of the largest public sector debt piles in Europe and
remains susceptible to contagion effects.
Major Forecast Changes
We have revised down our 2013 real GDP growth forecast for France to 0.4%, from a previous forecast of 0.6% on the back of our expectations for a weaker household segment and slowing external demand.
Full Report Details at
- www.fastmr.com/prod/536357_france_business_forecast_report_q2_20 ..
Key Risks To Outlook
Downside Risks To Fiscal Forecast: The possibility of a further intensification of the eurozone sovereign debt crisis and the potential need for state-led capital injections in the domestic banking sector keep the risks to our fiscal deficits over the medium term firmly to the downside.
Fiscal Risks Could Also Weigh On Growth: We see potential for a deeper than expected contraction in government consumption as revenues undershoot, forcing the government into pushing through deeper cuts in order to meet its fiscal targets. In this event, we would expect to see real GDP growth in 2013 drop to between 0.1 and 0.5%, with around 0.5 percentage points' lower headline growth in 2014.
Partial Table of Contents:
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
BMI Political Risk Ratings
Hollande's Political Scorecard
- Under a year into his presidency and in line with our previous expectations, Francois Hollande has already experienced a significant slide in popularity, with approval ratings falling to new lows of 37% in January, from 63% at the start of his tenure. Approval ratings are likely to continue falling, reflecting the failure of the traditional French policy tools in tackling new economic realities, and also the poor progress that Hollande has made in keeping a number of his key election pledges.
TABLE: POLITICAL OVERVIEW
Mali Crisis Crib Sheet And FAQ
- The decision by French President Francois Hollande to launch air strikes against Islamist militias occupying northern Mali has escalated the crisis in the West African state. Below, we highlight our core views on the evolving situation, and on what it would take to change it.
We also answer some frequently asked questions.
Chapter 2: Economic Outlook
BMI Economic Risk Ratings
Tough Year Ahead For Public Finances
- We maintain our forecast for France to miss its fiscal deficit target by 0.5 percentage points in 2013, expecting it to arrive at 3.5% of GDP owing to lower than projected economic activity and insufficient efforts to cut back public sector expenditure. Public debt loads are sustainable at current interest rates, although rising borrowing costs will remain an omnipresent risk.
TABLE: FISCAL POLICY
Downgrading Growth For 2013
- The fate of the eurozone's second largest economy will draw increasingly into focus this year, as France attempts to rein in its fiscal deficit to meet EU targets against a backdrop of flatlining economic activity. While President Francois Hollande has made some encouraging steps aimed at restoring France's lost competitiveness, major concern about France's economic future continue to linger..
TABLE: GDP BY EXPENDITURE
TABLE: CURRENT ACCOUNT
Balance Of Payments
No Signs Of Rebalancing Yet
- We do not expect to see a significant reduction in France's current account deficit in the near future, due to persistent competitiveness issues and weak external demand. While the government's announcement that it will pursue labour market reforms is a positive signal, the measures outlined are unlikely to prompt a significant reversal in France's trade deficit alone. We forecast France's current account deficit to narrow slightly to 2.0% of GDP in 2013 and 1.9% in 2014, from an estimated 2.2% in 2012.
Regional Banking Sector
Eurozone: Financial Union Remains Elusive
- The eurozone banking sector has struggled in recent months on the back of the regional economic slowdown. However, with a pickup in growth expected in 2013, and given the reduction in near-term systemic crisis risks, we expect a stronger showing in 2013. Over the longer term, the formation of a banking union - currently being debated by member states - will be instrumental in stabilising the eurozone banking system and fostering sustainable growth.
Exchange Rate Policy
Full Table of Contents is available at:
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