French economy long-term risk grows on civil unrest

French economy long-term risk grows on civil unrest
Ambulance workers hold flares outside the National Assembly in Paris, Monday, Dec. 3, 2018. (AP Photo/Michel Euler)

Downside risks to the eurozone outlook are growing and France is not immune, particularly against the current social backdrop, a leading economics group in London has warned.

Capital Economics chief European economist Jennifer McKeown said riots in France were likely to cause some near-term economic damage with tourism and domestic shopping in Paris taking a hit in the final quarter.

She said the French economy was still expected to better neighbouring countries in the short-term, but there were warning signs of impending difficulty in implementing reforms.

"Riots over living costs in France have not altered our view that the economy will outperform most of its neighbours in the next two years. But they highlight how difficult it will be for President (Emmanuel) Macron to implement more controversial growth-boosting reforms in future," she said.

The greatest concern for the economy relates to the longer term, Ms McKeown said.

Hopes following President Macron’s election in May 2017 stemmed not only from his ambitious plans to reform the labour market and the business environment, but also from the public’s apparent support for that agenda, she said.

"The slump in his approval rating, from 65% after the election to barely 25% in the latest polls, and the ongoing riots have clearly dealt a heavy blow to those hopes," Ms McKeown added.

Even if the protests dissipate soon, Ms McKeown said, they suggest that future reforms to make the pension system sustainable, increase incentives to work and improve the business environment will be even harder to achieve.

Downside risks to the outlook for the eurozone as a whole are growing and France is by no means immune, particularly against the current social backdrop, she said.

French stocks sensitive to the economy and to tourism fell in an otherwise buoyant market after the worst riots in decades swept Paris, stirring concerns about the possible damage from visitors steering clear of the capital.

Shares in supermarket chain Carrefour fell almost 6%, while shares in Air France-KLM were down more than 2.5%.

-- additional reporting Reuters

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