- France’s economy has taken a hit after weeks of yellow vest protests have caused issues across the country.
- French President Emmanuel Macron faces a vote of no confidence in the national assembly Thursday.
- Macron has offered concessions to quell the protests, but the country might breach the EU’s budget deficit ceiling next year without new spending cuts.
Weeks of protests by yellow vests in France have touched a nerve of discontent – among the people, investors, and French politicians.
The damage to the economy is apparent, and more is still to come. What started out as a fuel tax protest by rural communities soon escalated, morphing into a row over the country’s future. The yellow vest protests are expected to halve the country’s GDP growth by 0.2% from 0.4% in the fourth quarter.
Macron has offered concessions to quell the protests, promising to raise the minimum wage by 100 euros ($US114) a month while saying overtime will not be taxed or subject to social welfare charges. The costs will be hefty. Reuters reported that the country might breach the European Union’s budget deficit ceiling next year without new spending cuts. Macron faces a no-confidence vote Thursday (right after UK Prime Minister Theresa May fended off her own challenge Wednesday).
France is required to reduce its 2019 structural deficit by 0.6% of gross domestic product.
France’s 10-year borrowing costs rose to their highest level over Germany’s in 1-1/2 years Tuesday. The country’s credit default swap prices spiked more than 23% Wednesday after Macron’s political climbdown.
Retailers have lost an estimated €1 billion in revenue since the protests erupted, while shares in tourism-related shares saw their worst week in months. Upmarket department store Printemps said it suffered a 25% to 30% slump in sales over the past four weeks, directly influenced by the yellow vest protests. RBC Capital Markets says French luxury brands are among the most exposed stock sectors in light of the disruption.
Heightened political risk in France will also be on the agenda when European Central Bank President Mario Draghi outlines euro area growth and inflation projections Thursday.
France isn’t immune from the US-China spat over global trade, either.
“The trade war that we are seeing will have an important and negative impact on global growth in the coming months,” French interior minister Bruno Le Maire said, according to Reuters.
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