French protests and transport strikes against the government’s planned pension reforms have been ongoing for more than 40 days now, without precedent in France´s recent history. It is not the first time that the country is paralyzed by a nationwide transport union blockage. Recent protests echoed the ones of late 1995, which were also spurred by proposed pension reforms.
Back then, the French national statistics bureau, INSEE, estimated that the impact of social unrest was a reduction in GDP of about 0.2% for the last quarter of 1995. At the time, the Paris region was especially affected as were a number of sectors: telecom, energy, education and health. 1995 strikes resulted in lower consumer spending and production disruption.
Today’s concerns about downside risk to the French economy are legitimate. Paris has borne the brunt of the economic slow-down with restaurants, tourism and retail stores suffering the most, especially around the critical Christmas period. Strikes are for sure weighing on consumer confidence. However, the population has adapted to the situation thanks to e-commerce, remote working, carpooling and car-sharing, which are all services or alternatives that are now widely accepted and available.
Business surveys and other advanced French economy indicators are holding up, especially when compared to other European economies. Despite the global manufacturing slowdown, French economic data does not point to any major drag on the industrial sector. Germany, however, is feeling the pain. Additionally, the latest Ernst & Young industrial barometer named France as the most attractive country in Europe.
French Finance Minister, Bruno Le Maire, recently commented that transport strikes would have little impact on growth and employment; an analysis we share. Overall, we expect 4Q19 GDP to grow approximately +0.3%. A compromise between the French government and reformist unions was found last week. This latest development is a positive step and paves the way to an end in the strikes. However, if both parties fail to reach an agreement and protests continue, growth could remain tilted to the downside with more clouds on the horizon.