French look set to re-elect Macron in vote overshadowed by Ukraine

In the conflict between Russia and Ukraine, President Macron has often been the European Union’s spokesman with Moscow.

CIO at Lombard Odier

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French voters will choose their next president on 24 April. One of the world’s fastest economic recoveries, rampant consumer price rises and social policy should have dominated political debate. Instead, many of those issues are overshadowed by the war in Ukraine, putting incumbent Emmanuel Macron on course to be re-elected according to opinion polls since January 2022. 

In the conflict between Russia and Ukraine, President Macron has often been the European Union’s spokesman with Moscow. A series of exchanges have included a Kremlin meeting with Russian President Vladimir Putin separated by a six-metre-long white table ten days before the invasion. Since the start of the war on 24 February, the French president, along with his German and Turkish counterparts, has been one of the few direct contacts with Putin. After a 3 March call between the two, initiated by Putin, the Elysée Palace reported that the Russian president’s determination to pursue the war means that “we expect the worst is yet to come.” 

The first round of the French election takes place on 10 April. Unless one of the 14 candidates attracts a majority of votes at that stage, a second-round run-off between the top two is scheduled for 24 April. Mr Macron officially announced his running for a second term a day before the formal deadline closed on 4 March. If re-elected with a five-year mandate, Mr Macron would be the first French president to serve a second term since Jacques Chirac’s mandate of 1995-2007.

Every opinion poll points to President Macron advancing to the second round of the election, with surveys consistently suggesting he will gather more than 24% of first-round votes and more recently, as much as 27%. Second-round polls indicate that he would then beat whoever opposes him. It is not yet clear who will emerge to face President Macron in the 24 April run-off: Marine Le Pen, Eric Zemmour, Valérie Pécresse and Jean-Luc Mélenchon, are expected to attract between 12% and 18% of the vote. As an alternative to President Macron, French voters are being offered euro-sceptic, hard-right and left-wing choices. The more traditional socialist and centre-right parties have been overtaken in polling by the two far-right candidates (see ‘Profiles: Alternatives to Macron’, page 3). 

Since taking office in May 2017, President Macron has been the strongest European advocate for greater EU integration, including the bloc’s budget and defence policies. The Ukraine war and the Covid pandemic have radically shifted European policy towards massive fiscal support and a radical pivot in defence spending. 

Pandemic recovery 

As the pandemic’s economic impact faded in 2021, France recorded a 7% annualised growth in gross domestic product, its fastest expansion in more than half a century. We expect growth to reach slightly over 3% in 2022. 

Overall, the French economy remains resilient and plans a EUR 100 billion programme of public investment over two years, labelled ‘France Relance.’ This includes spending on improving commercial competitiveness, ecological and social projects. 

Unemployment fell to 7% in January 2022, a lower rate than when Mr Macron took office in 2017, and with the 50-64 year-old group achieving record-low levels of joblessness. Part of the recovery is due to government support to businesses through the pandemic, which included EUR 300 billion in state-guaranteed loans to limit bankruptcies. 

Of the world’s main developed economies, only the US and France have now revived activity to levels higher than before the pandemic, in part thanks to high government support. As a result, French national debt rose from 97.6% of GDP in 2019 to 115.7% 2020. That is second only to Italy in Europe and just above the UK, according to International Monetary Fund. 

The country, accounting for around one-fifth of eurozone GDP, has prioritised regulatory stability in recent years, and carried out a series of reforms designed to make labour laws more responsive to economic trends, reduce unemployment benefits and cut capital and income taxes. 

As part of a push to make the French economy more business friendly, in 2019 President Macron set a goal of establishing 25 French ‘unicorns,’ or tech start-ups with a market capitalisation of more than USD 1 billion by 2025. That target was reached three years ahead of schedule, in January 2022, when Exotec, a robotics firm, announced that it had raised funding to take its valuation to USD 2 billion. This ‘licorne’ list includes Doctolib, the app behind booking medical appointments that French residents became familiar with through the pandemic. 

In energy terms, French nuclear power has left it more independent of Russian energy than Germany or any of its eastern EU partners. France already sources around 70% of its energy needs from nuclear power and that may be about to intensify. In February the president promised to build new nuclear power plants starting in 2028. The nuclear ambitions form part of a French plan to achieve a net-zero carbon economy by 2050, and includes pledges to invest in wind and solar technologies, as well as increase developments in clean hydrogen power. 

As European energy policy shifts to rely less on Russian sources, these French ambitions enjoy wide domestic political support. 

Outstanding issues, rising prices

If Mr Macron is re-elected, he will face a series of outstanding issues from his first term including further reforms to its social and economic infrastructure. First among the challenges ahead is pension reform. Abandoned in the wake of Covid in 2021, President Macron has put off attempts to raise the retirement age and end privileges that let some employees stop work before others. 

France, along with other developed economies has high levels of inflation. At the end of 2021, French annualised inflation stood at 3.4%, and may have reached 3.6% in February compared with a year earlier, the fastest price increases in almost 14 years. We expect inflation to finish 2022 at around 2.8%. 

This has the potential to renew popular protests against the rising cost of living that became known in 2018 as the ‘gilets jaunes’ (‘yellow vest’) movement. Before the pandemic, France experienced widespread unrest, strikes and opposition to a range of issues, including petrol prices and fuel taxes, rural speed limits and minimum wages. 

Another focus will remain the need to continue reforms in education after two years of disrupted timetables and home-schooling. The country has already made profound changes to the final school exams taken by 18-year olds. 

The pandemic experience has also heightened discussion around France’s growing dependence on food imports. The Sénat, the upper house of parliament, has called for greater support to farming to improve food security. War in Ukraine has intensified discussion around the need to grow more food in a country that remains the largest agricultural producer in the EU. 

Reassessing risk

As consumer prices rise, the European Central Bank must decide at what pace it can afford to fight inflation with interest rate hikes. With growth set to slow across the eurozone, we do not expect a first rate hike before 2023. 

The war in Ukraine has triggered a reassessment of risk in financial assets as Western firms quit the Russian market, and sanctions on Russia’s capital flows, assets and individuals take hold. Russia was France’s 15th-largest market in 2020, accounting for 1.2% of the country’s exports, worth USD 5.9 billion. A total of 35 of the CAC40 firms, including Accor, Danone and Renault, through its Avtovaz subsidiary, operate in Russia.

Commodity markets from grain to natural gas have been disrupted and the euro has weakened as investors sought the safety of the US dollar. These geopolitical instabilities risk raising prices further while trimming global growth. The impacts should, we believe, remain manageable, and leave the world’s economies still expanding through 2022 thanks to additional government fiscal support. 

In the expectation that volatility will continue, we have lowered equity exposure in our portfolios, particularly in Europe where inflationary risks linked to higher energy prices look set to have the greatest impact. We have also increased our cash holdings and added positions in a broad basket of industrial commodities as we continue to review our tactical positioning, ready to make further changes in line with events.  

Profiles: Alternatives to Macron (opinion poll data collated by Politico) 

Marine Le Pen is the candidate for the ‘Rassemblement national’ (RN) party, the former ‘Front national’. Mrs Le Pen, who inherited the party from her father, lost the second-round run-off against Mr Macron in 2017. During that presidential campaign she called for the recognition of Russia’s 2014 annexation of Crimea as well as the lifting of related European sanctions. She has since condemned Russia’s invasion of Ukraine. Mrs Le Pen is estimated set to win around 17% of the first round vote. 

The far-right Eric Zemmour heads the ‘Reconquête’ (‘Reconquest’) party, founded in April 2021 to fight the election. A former political journalist, television pundit and polemicist who campaigns on an anti-Islam, anti-immigration platform, he expressed admiration for Putin in 2018 and was fined in January 2022 by a Paris court for inciting hatred. Recent polls give Mr Zemmour a share of around 13% of the first-round vote. Most recently, Mr Zemmour received the backing of Mrs Le Pen’s niece, Marion Maréchal, a former RN party member and a former elected deputy of the French lower house of parliament, the Assemblée Nationale. 

As recently as mid-February, Valérie Pécresse, representing ‘Les Républicains,’ (LR) was considered a leading contender to oppose Mr Macron. The centre-right party provided many of France’s past presidents, including Nicolas Sarkozy, Jacques Chirac and Charles de Gaulle. Mrs Pécresse’s support has declined after she adopted a harder line on immigration and security. She is currently forecast to attract around 13% of the first-round vote. 

Jean-Luc Mélenchon, candidate for the left-wing ‘France insoumise’ or ‘France un-bowed’ party that he founded in 2016, has been an education minister under former Prime Minister Lionel Jospin, and a member of the European Parliament and senator. In 2014 he defended Russia’s annexation of Crimea and its objections to NATO. The latest opinion polls give Mr Mélenchon a share of around 12% of the vote in first round voting. 

The candidate for ‘Europe Ecology – The Greens,’ Yannick Jadot was a leading Greenpeace activist until 2009, when he was elected to the European Parliament. Mr Jadot was also a candidate in the 2017 election and is currently projected to attract around 6%. 

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French look set to re-elect Macron in vote overshadowed by Ukraine