French markets must expect a thrashing

While Europe’s recovery seems to be gaining traction, France may have fallen into a triple-dip recession, with GDP shrinking in the fourth quarter of 2013 after a decline in the third.

In December, activity in the French manufacturing and service sectors both shrank. France is now “the sick man of Europe”, says Berenberg Bank’s Holger Schmieding.

A key problem is that over the last few years, while many eurozone countries have tackled structural reforms to boost competitiveness and growth, France has barely made any effort at all.

With high payroll taxes and an inflexible labour market, companies are finding themselves priced out of export markets, while the overbearing state – public spending accounts for 56% of GDP – is hampering dynamism at home.

The government has opted to meet EU deficit targets by raising taxes yet further, increasing the burden on the economy, says Konrad Yakabuski in Canada’s Globe and Mail. It’s the path of least resistance: “any attempt to adjust, even minimally, France’s statist economic model and cradle-to-grave safety net is met with paralysing howls of protest”.

However, taxes are now so high, with a top rate of 75%, that they also trigger howls of protest – and an exodus of talent. Given this backdrop, and President Hollande’s unpopularity and lack of credibility, significant reforms to galvanise growth are not expected in 2014.

In light of the unpromising outlook, reckons David Stevenson in the FT, French stocks “could get a thrashing this year”.

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+

MoneyWeek magazine

Latest issue:

Magazine cover
Party's over for Putin

The only portfolio safe from Russia's rout

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Hedge fund manager Hugh Hendry: 'It felt like the sun rose only to humiliate me'

In a series of three short videos, Merryn Somerset-Webb talks to Hugh Hendry, manager of the Eclectica hedge fund, about everything from China to the US, Europe, and Japan.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


19 December 1932: BBC World Service begins

The first royal Christmas message by George V gave the fledgling World Service an early boost six days after it was founded in 1932.