A Le Pen victory would push France’s debt to 120% of GDP, warns Goldman Sachs
France’s national debt could rise if Marine Le Pen’s National Assembly (RN) party wins an absolute majority in the National Assembly elections, Goldman Sachs has warned.
Goldman predicts that if in power, the far right would deliver a major fiscal expansion, pushing France’s debt-to-GDP ratio to 120% by 2027.
This highlights why France has turned into Europe’s most unloved stock market (see earlier post).
By contrast, a “state-of-the-art election result” would see debt stabilize at 113% of GDP in 2027, Goldman estimates.
And if France is left with a hung parliament that does not allow any political group to pass meaningful tax or spending measures, the debt could rise to 116% of GDP.
Goldman points out that political groups have begun to draft their economic policy platforms:
On labor market reforms, both the left-wing coalition and the far-right oppose the 2023 pension reform, which raised the retirement age. However, far-right leader Jordan Bardella recently said that a review of the pension system would not be a “short-term priority” and would rather come “at a later stage”.
On taxes, both the left-wing coalition and the far-right support the reduction of VAT on energy and food, as well as the reintroduction of wealth tax. At the same time, the current government and the center-right have pledged not to raise taxes on companies and households.
France has made some progress in reducing its public debt in recent years; in 2023, according to statistics, it was 110.6% of GDP INSEEwhich is down from 114.9% in 2020.
Goldman also warns that the current “ongoing episode of political uncertainty” could hurt France’s fiscal outlook if it leads to higher borrowing costs for Paris.
Key events
Final summary
Time to recap…
The French stock market has become the least popular in Europe, according to a survey of fund managers flask of America.
Goldman Sachs warned that a victory for Marine Le Pen’s party in the French election would cause the national debt to rise.
HSBC A Swiss private bank failed to carry out proper checks on $300 million worth of funds sent between Lebanon and Switzerland over 13 years, Switzerland’s banking regulator said.
The board of Hargreaves Lansdown is willing to back a takeover bid from a private equity consortium that would value Britain’s biggest investment site at £5.4bn.
U.S. retail sales barely rose in May, suggesting economic activity remained lackluster.
HSBC said the money laundering breach brought to the attention of Swiss regulator FINMA today (see here) was “historic”.
The bank added:
“HSBC takes its anti-money laundering obligations very seriously, including compliance with all laws and regulations in every market in which we operate.”
HSBC will appeal the decision and will therefore not comment further.
Hargreaves Lansdown to receive £5.4bn takeover bid
Investment platform Hargreaves Lansdown has received a new £5.4bn takeover proposal from a group of private equity buyers.
This revised proposal follows three previous approaches in recent months from a consortium of CVC Advisers Limited, Nordic Capital and Platinum Ivy of Abu Dhabi.
They are now proposing to pay 1,140p per Hargreaves Lansdown share in cash, up from the 985p/share offer that was rejected in April.
Hargreaves Lansdown’s board says it is willing to unanimously recommend the new proposal to shareholders if a binding offer is made and will give the consortium access to carry out due diligence.
Shares in Hargreaves Lansdown jumped 5% to £11.27.
Goldman Sachs’ warning that a far-right government could increase France’s national debt (see here) comes at a politically sensitive time.
Tomorrow, the European Commission is expected to name and shame those EU members who have failed to follow its budget rules, targeting annual deficits of 3% and debt at 60% of GDP.
France (which last year ran a deficit of 5.5% of GDP and a debt of 110.6%) could easily run afoul of the excessive deficit procedure, potentially leading to a fine.
France has long since gotten away with breaking the eurozone’s budget rules, providing laxity that southern European members could only dream of.
But with Marine Le Pen’s party riding high in the polls, the European establishment may take a harder line.
As Politico says:
It is one thing, after all, to sack a pro-EU, statesmanlike leader for the type of reckless spending that threatens the economic stability of the eurozone. It’s quite another when it’s shamelessly carried out by a nationalist glutton who doesn’t think the rules are worth the paper they’re written on.
“If it’s irresponsible.” [French spending] the plan was put on the table and the Commission said ‘no problem’, then the whole fiscal framework is lost,” said Zsolt Darvas, a senior fellow at the influential Bruegel think tank in Brussels, referring to the way the EU executive gets to rule over government budgets . “Other populist parties would ignore the rules forever.”
Wall Street wasn’t spooked by weaker-than-expected US retail sales numbers.
Stock futures moved slightly higher, while the yield (or interest rate) on US government debt fell (indicating that prices rose).
Bad economic news could be good for markets if it prompts the US Federal Reserve to cut interest rates soon…
Retail sales in the US barely grew in May
Just in: US retail sales grew more slowly than expected last month.
U.S. retail and food service sales rose 0.1% in May after a downwardly revised 0.2% decline in April.
Retail sales were 2.3% higher year-on-year than in May 2023, decelerating from the 2.7% growth seen in April.
slowing eco
⭐ Retail Sales Ex Gas/Autos MoM, Actual: 0.1% 🔺, Previous: -0.3%
⭐ Retail Sales YoY Actual: 2.3% 🔻 Previous: 3%
⭐⭐ Retail Sales Ex Autos MoM, Actual: -0.1% ❌⚖️, Forecast: 0.2%, Previous: -0.1%
⭐⭐⭐ Retail sales for the month, Actual: 0.1% ❌🔺, Forecast: 0.2%,… https://t.co/CtU3gtwXEZ
— god of commerce (@candkjr) June 18, 2024
This may indicate that demand across the US weakened last month, with high interest rates weighing on consumers.
Michael Brownanalyst in the company Pepperstonesays the report is another sign that the narrative of “U.S. exceptionalism” may have died down.
“May’s US retail sales report showed further signs of US consumer fatigue, with total sales rising 0.1% month-on-month, up from a revised 0.2% decline in the previous month.“
A Le Pen victory would push France’s debt to 120% of GDP, warns Goldman Sachs
France’s national debt could rise if Marine Le Pen’s National Assembly (RN) party wins an absolute majority in the National Assembly elections, Goldman Sachs has warned.
Goldman predicts that if in power, the far right would deliver a major fiscal expansion, pushing France’s debt-to-GDP ratio to 120% by 2027.
This highlights why France has turned into Europe’s most unloved stock market (see earlier post).
By contrast, a “state-of-the-art election result” would see debt stabilize at 113% of GDP in 2027, Goldman estimates.
And if France is left with a hung parliament that prevents any political group from passing meaningful tax or spending measures, the debt could rise to 116% of GDP.
Goldman points out that political groups have begun to draft their economic policy platforms:
On labor market reforms, both the left-wing coalition and the far-right oppose the 2023 pension reform, which raised the retirement age. However, far-right leader Jordan Bardella recently said that a review of the pension system would not be a “short-term priority” and would rather come “at a later stage”.
On taxes, both the left-wing coalition and the far-right support the reduction of VAT on energy and food, as well as the reintroduction of wealth tax. At the same time, the current government and the center-right have pledged not to raise taxes on companies and households.
France has made some progress in reducing its public debt in recent years; in 2023, according to statistics, it was 110.6% of GDP INSEEwhich is down from 114.9% in 2020.
Goldman also warns that the current “ongoing episode of political uncertainty” could hurt France’s fiscal outlook if it leads to higher borrowing costs for Paris.
French supermarket giant Carrefour is not involved in today’s stock market recovery.
Shares in Carrefour fell more than 7% after news that France’s finance ministry had asked a court to fine the retailer for contracts with franchise stores that it said were lopsided in its favor.
FRENCH MINISTRY OF FINANCE CONFIRMS COURT TO FINE CARREFOUR AFTER FINDING MISTREATMENT OF FRANCHISEES
— Capital Hungry (@Capital_Hungry) June 18, 2024
Carrefour disputed the ministry’s “complaints” and said it was intervening in a dispute that began months ago without providing new information on the merits of the case and that it had “full confidence” in its ability to prove the validity of its contracts. This is reported by the Reuters agency.
Despite the dip in investor sentiment, the French stock market is slightly stronger today.
The CAC 40 the index is 0.33% higher today, gaining 25 points to 7,596 points.
German DAX gained 0.15%, while ital FTSE MIB gained 1%.
Lee Hardman, Senior FX Strategist at MUFG, says:
“Markets calmed down after last week’s French government bond moves and we had some comments from [Marine] Le Pen said she respects institutions.
French markets steady after Le Pen says she will work with Macron to appeal to French moderates
“I respect institutions and do not call for institutional chaos. There will just be coexistence.” https://t.co/6c1TjoEKiz
— Jean-Claude (@Beyond_Mystic) June 17, 2024
Retail insolvencies rose sharply in April
Today’s UK insolvency statistics also show that there has been an increase in retail failures this spring.
Wholesale and retail insolvencies rose 27% month-on-month in April to 355 from 280 in March and were 30% higher than in April 2023.
A month ago we learned that total insolvencies rose by 17% in April, but today we have more details (as well as the top data for May).
Gordon Thomson, restructuring partner in a leading audit, tax and consulting firm RSM UK, says:
“The tough business environment for the retail sector continues to drag on, resulting in an increase in insolvencies in April. As retailers grapple with high costs, lackluster consumer demand and too many April showers, they have also been hit by an increase in the national minimum wage, which for some may have been the last straw.
“However, with inflation falling, real wages rising and interest rates falling, this is good for consumer confidence and sets the stage for an increase in consumer spending in the second half of the year. For those retailers who have managed to weather the storm so far, there is light at the end of the tunnel.