Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Chart of the Week : France’s Bank Loan Growth
Christopher Dembik
Head of Macroeconomic Research
Summary: Discover the secret ingredient behind France's strong economic momentum.
In today’s edition, we focus on the French economy. Despite the Yellow Vest Movement in 2018 and the longest transport strike in 50 years in 2019/early 2020, France is among the best performing economies in the Eurozone. In 2019, GDP growth is expected to reach 1.3%, which is twice more than Germany’s GDP, and 1.2% in 2020. The country is finally following a positive trend. Unemployment is receding at a 10-year low and more than 500k jobs have been added to the economy since 2017, including 260k past year. Since two years, France has also experienced an industrial renewal, which was basically impossible to imagine a few years ago, with the creation of 24k jobs since 2018. Macron’s policies to cut tax on companies and investors and made hiring and firing easier via changes to labor laws have undoubtedly restored investors’ confidence and helped boosting growth but, in our view, the main explanation behind France’s positive performance is to find somewhere else. In the chart below, you have the evolution of bank loan growth to the private sector since 2014. It has continuously increased over the years and it has evolved without any interruption above the stunning level of 5% YoY since July 2018. Credit – in other words debt – has been fueling the economy at a rapid path under Macron’s presidency and it is clearly a better explanation for the good performance of the French economy in 2019 than solely the impact of the structural reforms and/or the demand-oriented package decided to appease social unrest. France’s secret ingredient behind strong economic momentum is basically more debt.
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