Emmanuel Macron needs growth, says Moody’s

Emmanuel Macron

The election of Emmanuel Macron in France is a positive for the country’s creditworthiness but his presidency could yet come unstuck if it fails to deliver growth to help cut its large debts, Moody’s Investors Service has said.

The warning came as European stocks, which had rallied after the first round vote two weeks ago, held steady. After an initial surge, the euro slipped against the dollar and sterling.

“The ability of France’s policymakers to design, and successfully implement, policies which enhance growth and support fiscal consolidation over time will drive the trajectory of France’s rating and outlook over the medium-term,” said Sarah Carlson at Moody’s.

“The new president will face tests in all of these areas,” she said.

Moody’s said France’s debt load at around 100% of GDP will likely remain elevated, while the prospects for economic growth were weak “without significant growth-enhancing reforms”.

“Should the presidency and parliament fail to reach an accommodation on future policy, France could potentially face up to five years of policy drift that would further undermine the country’s credit profile,” the credit rating firm said.

Mr Macron received 66% of the votes. 

The far-right, anti-euro Marine Le Pen, who sought to take France out of the EU, had 34%.

Some analysts argue Mr Macron’s victory has been largely priced into the stock market, as polls had repeatedly predicted he would win against Le Pen by a wide margin.

“Overall, any (further) sustainable upside in stocks should be limited,” Bankhaus Lampe equity strategist Ralf Zimmermann wrote.

The outcome will likely release the “political handbrake” which has impacted investor behaviour thus far, Citigroup strategist Jonathan Stubbs wrote.

He expects international investors, including those from the US, to now buy more European equities

The pan-European STOXX 600 index slipped by just over 0.1% while France’s CAC 40 index fell almost 1%. The euro fell against the dollar to over $1.092 and slipped to 84.5p against sterling.

“The euro couldn’t sustain the rally as it took to consolidating a 3% spike since France’s presidential vote started two weeks earlier,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

“Nevertheless, the euro appears to have emerged from the French vote with a relatively bullish bias as dissipating political risk should intensify the spotlight on the [EU] bloc’s improving economic prospects.” 

  • Additional reporting Reuters and Bloomberg

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