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French elections: What to expect following Macron’s victory

Our Blog May 08, 2017
Columbia Threadneedle Investment Team

The election of Macron removes a threat to the future of the eurozone and relieves global markets.

Pro-European centrist Emmanuel Macron has been elected president of France, following a tumultuous contest. This comes as a relief to investors, as Macron’s rival, former National Front leader Marine Le Pen, had campaigned on an anti-euro, anti-EU platform that threatened to shock global markets even more than last year’s Brexit vote.

Macron, a former investment banker, has proposed a pro-business, pro-growth agenda. “The French have voted for stability,” says Philip Dicken, Columbia Threadneedle's Head of European Equities. “We expect eurozone stock market volatility to decrease as political worries retreat.”

Macron’s key proposals

  • €60 billion in cuts in public spending by 2022
  • A €50 billion stimulus over five years
  • A deficit below 3% of GDP, in line with EU requirements
  • Negotiating a eurozone budget and EU-wide investment program with Germany
  • A cut in the corporate tax rate from 33% to 25%

What hurdles may Macron face?

Some of the economic reforms Macron has proposed are radical by French standards. As an independent, Macron is backed only by his ‘En Marche’ movement as opposed to a full-fledged political party. But he will need support from the French parliament in order to effectively advance his agenda. So, if legislative elections in June prove divisive, there may be short-term risks to the outlook.

What does it mean for markets?

Although we expect markets and the euro to react positively, gains are likely to be modest as markets had largely priced in Macron’s victory already.

Bottom line

The French election results provide a relief from looming uncertainty. We expect a continuation of the European economic recovery and that monetary policy will remain loose. “Given this benign macroeconomic backdrop,” says Dicken, “and less expensive valuations for European stocks relative to their U.S. counterparts, active investors can uncover attractive opportunities.”