SVET Reports
France Political Turmoil in 2024
The recent performance of the CAC 40, which rose 1.3% to close at 7,427, marks its highest point in nearly a month, extending a seven-day winning streak and contributing to a weekly gain of 2.8%. This positive trend helps to break a six-week losing streak, indicating that while the markets are nearing all-time highs, they have endured a notable dip since March. Despite these fluctuations, the historical context suggests that the current state of the market does not signal an impending crisis.
The current economic framework shows that the French GDP expanded by 1.2% year-on-year in the third quarter of 2024, albeit revised down from an initial estimate of 1.3%. This marks an acceleration from a 0.9% growth rate in the previous quarter. While this growth rate may appear modest compared to the average of 3.04% recorded from 1950 to 2024, it still outperforms the EU average of less than 1%. Therefore, the economic backdrop does not offer a compelling justification for the recent political turmoil.
In addressing unemployment, France’s rate edged up to 7.4% in the third quarter of 2024, a slight increase from 7.3%. This figure aligns with market expectations and reflects the level not seen since 1982, although it remains below the highs of 10% in 2014. While the upward trend is concerning, the overall situation is not catastrophic, and the long-term trajectory had previously been downward.
In terms of inflation, the annual rate in France reached 1.3% in November 2024, the highest figure in three months. However, context is vital; this rate is exceptionally low compared to the volatility of inflation rates in the early 1980s, wherein figures exceeded 13%. Furthermore, inflation has been on a consistent downward trend since 2023.
While the benchmark interest rate in France is set by the European Central Bank, historical averages remain relevant. Currently close to the top of an average of 1.85% since 1998, the interest rates indeed challenge business development but remain manageable, especially against a backdrop of low inflation and unemployment.
One can note that France's current account deficit widened to EUR 2.6 billion in October 2024, from EUR 2.4 billion the previous month. Though worsening, such variances are not extraordinary given historical data—deficits have exceeded EUR 8 billion in the past. Additionally, France recorded a government budget deficit equal to 5.50% of GDP in 2023, higher than the historical average but less severe than the alarming 9% of GDP recorded in 2020.
On the manufacturing front, the climate indicator improved to 96.7 in November 2024, suggesting less pessimism among manufacturers, although the HCOB Manufacturing PMI fell to 43.1, signaling continued contraction in the sector for the 22nd consecutive month. While these figures indicate stagnation, such a trend is not unique to France but echoes the global economic environment.
Despite these economic indicators, a deeper examination reveals that the current crises in French politics cannot be explained solely through economic hardship. Societal discontent seems to be part of a broader generational shift that transcends immediate economic conditions. The political landscape is heavily influenced by younger politicians leveraging a precarious geopolitical climate—marked by the West's perceived capitulation to Eastern powers and the specter of future conflicts.
The current political dynamics capitalize on a narrative of decline and despair that may not align with the economic realities. The disconnect between political heat and economic metrics suggests that the discontent expressed by the masses is fueled more by perception and generational identity than by financial indicators alone. Issues surrounding immigration and national identity seem to provide fertile ground for rising political forces to galvanize support, emphasizing a struggle for influence amid a rapidly changing world.
In conclusion, while France’s economy is developing slowly and presents some challenges, it simultaneously outperforms the EU average, and the fundamentals are not as dire as they may appear. The recent political crises are not merely products of economic hardship but rather reflections of broader generational shifts. The emerging political class appears to be harnessing discontent and uncertainty to further their agendas, complicating the narrative surrounding France’s stability and future direction.