Macron Wins the Hearts of France's Business Leaders

Updated on
  • PM pledges tax cuts are priority as business confidence surges
  • Bank of France sees economic growth of 0.5% this quarter

Emmanuel Macron

Photographer: Christophe Morin/Bloomberg

Emmanuel Macron has won the hearts of France’s business leaders, who are counting on him to push through radical reforms to sustain an economic recovery that’s been a long time coming.

Confidence is at a six-year high, and executives from Societe Generale SA to building materials firm Cie. de Saint-Gobain SA have spoken of a brighter mood since the new president was elected in May, partly on hopes that he’ll help deliver the sustained robust expansion his predecessors couldn’t inspire.

Bank of France business confidence is at the highest in six years

The Bank of France reported a better-than-forecast jump in manufacturing confidence on Wednesday, and said the economy could grow 0.5 percent this quarter. That’s higher than the 0.4 percent prediction in a Bloomberg survey.

Separately, Prime Minister Edouard Philippe promised in a radio interview to focus on cutting spending and taxes that “hurt competitiveness” and government spokesman Christophe Castaner said planned protests won’t deter it from clipping protective labor laws.

“Confidence levels reflect a catch-up effect after five years of weak growth,” said Ludovic Subran, chief economist at Euler Hermes in Paris. “The commitment to budget discipline signals taxes won’t increase in the next five years.”

The president wants to pursue the deregulation many other European countries already implemented to improve their growth potential. While corporate leaders’ faith is providing impetus for change, he needs their view to spread as his narrow voter base exposes him to traditionally potent local resistance. Macron, a former banker, isn’t aligned with a major party and never held elected office before he was chosen amid record abstention. 

France’s success also has implications for the 19-nation euro area, where its second-largest economy has long failed to provide support, leaving Germany as the solo engine. Better growth would broaden the recovery and help an upswing which the European Central Bank is banking on to boost inflation.

‘Better Mood’

“There is definitely a better mood in France, a better level of confidence,” Frederic Oudea, chief executive officer of Societe Generale, said in a Bloomberg interview this month.

Macron’s plans to transform the tax credit known as CICE into a lasting reduction in employer contributions and cut the corporate tax rate will help boost profit by more than 5 percent for some companies, Natixis strategists Sylvain Goyon and Thomas Zlowodzki wrote in a note published Wednesday.

The economy is currently enjoying its strongest continuous expansion since 2011 and the composite PMI remains elevated, even though it’s slipped for the past two months, signaling some softening. The benchmark CAC 40 Index has risen almost 6 percent this year, ahead of the Stoxx Europe 600 Index.

“Growth may be ebbing a little, but should remain fast enough to help unemployment drift lower,” Bloomberg Intelligence economists including Jamie Murray said in a report published Tuesday. “Macron has a rare opportunity to lift the economy’s longer-term prospects by pushing through radical reforms aimed at making the labor market more dynamic.”

Macron already has business-friendly credentials. As an adviser to former President Francois Hollande, he enacted steps such as 40 billion euros ($47 billion) in tax credits.

“I have started to see in the last few weeks a small change of attitude which is positive,” Saint-Gobain boss Pierre-Andre de Chalendar told analysts in July. “I am more optimistic about France than I was six months ago and also than I was two months ago.”

Macron’s toughest task may be overhauling labor laws amid a drop in approval ratings. Disappointing job creation was among the reasons Hollande became the first president in half a century not to seek re-election.

“France still has a level of growth which is beneath its potential,” Finance Minister Bruno Le Maire told Bloomberg last week, maintaining a 1.5 percent growth forecast for 2017. “France must do better than its major partners such as Germany, not worse. That’s our target and we’ll stick to it.”

— With assistance by Caroline Connan, Barbara Sladkowska, Blaise Robinson, and Geraldine Amiel

(Updates with comments from government in fourth paragraph.)
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