Political uncertainty, a grain of sand for the French economy?

For Andreas Eisl, a researcher in European economic policy at the Jacques Delors Institute, "if there is a situation of uncertainty or political instability, it generally has a negative effect, particularly on investment" by companies.

Invited on RTL on Thursday, the president of the Union of Local Businesses (U2P) Michel Picon joined the cries of alarm from other employers' organizations regarding the impact of the political blockage on hiring and company projects.

"The situation is creating a wait-and-see attitude and anxiety in the construction industry, in the healthcare sector, in all small businesses," he said.

"Things are not catastrophic" but "it must not last," continued Mr. Picon.

Head of economic research on OECD countries at BNP Paribas, Hélène Baudchon "hears this discourse from business leaders".

"But when we look at the determinants of investment or employment," a government's policy "is not at all the main determinant," she qualifies.

"What matters to companies are the opportunities" linked to their investments, she argues.

Beyond businesses, the impact of political uncertainty on household consumption, the essential fuel for French growth, is "very complex" to assess, underlines Andreas Eisl. Since Covid, the propensity of the French to save rather than consume has indeed increased significantly, regardless of the political context.

On Friday, INSEE reported a slight increase of 0,3% over one month in household consumption in July, after a drop of 0,6% in June.

The business climate partially recovered in August after a plunge in July, even if it remains slightly below its historical average.

While the lack of visibility on the composition and orientations of the next government may be frightening, ING economist Philippe Ledent assures that "we must not exaggerate the impact of such a situation."

"Slight growth"

"We are not in planned economies (...) Everything does not depend on the public sector" and government policy, he emphasizes.

The Insee, whose forecasts are the benchmark in France, is counting on growth of 0,5% in the third quarter, largely supported by the hosting of the Olympic and Paralympic Games, and a slight decline of 0,1% in GDP in the fourth.

ING expects modest growth in the coming months, but Mr Ledent does not believe the political crisis could cause a "recession".

In July, BNP Paribas was forecasting a 0,3% increase in GDP in the third quarter and 0,4% in the fourth quarter, before an update of its forecasts is expected shortly.

Ms Baudchon acknowledges that France "is in a period of uncertainty. But that will not have a significant impact on our growth forecasts," she assures.

Mr. Eisl agrees. "For the moment, given the economic data, I don't see the country's economic trajectory changing drastically, which is still (oriented, Editor's note) towards slight growth."

This could also be supported by rate cuts from the European Central Bank (ECB), while inflation fell below 2% in August for the first time since 2021 in both France and Germany.

For Ruben Nizard, head of socio-political risk analysis at credit insurer Coface, "isolating the (economic, editor's note) impact of a specific event - in this case political uncertainty - is" in any case "quite complicated".

The economic consequences of the political deadlock will depend "a lot on how long this uncertainty lasts," he continues.

Preparation of the 2025 budget, presentation of a national debt reduction plan to the European Commission, updating of France's credit rating by the three reference agencies... There will be many economic deadlines in the fall.

"Given the balances" resulting from the legislative elections - three political blocs without an incontestable majority - Ruben Nizard expects "very difficult" discussions in Parliament on the draft finance bill.

"There will probably be a bit of economic volatility there," he speculates.

Illustrative image of the article via Depositphotos.com.