During the last year, French economy demonstrate steady Q-o-Q GDP Growth and yearly GDP growth, with Q-o-Q GDP Growth standing above the level of 1.10% without intense fluctuations. The growth rates of French Economy are slowed down, but they display relative stability and less spikes and bottoms and because of that we are expecting similar growth rates at least for the following quarters. One optimistic element of French economy is the contained unemployment rate which is historically one of the biggest problems of French economy, fell at 9.18%, the lowest after 2011. However, the French economy is characterized by high debt, with the ratio of debt to GDP being increased year by year. The value of 98.4% constitutes a warning for the long-term trajectory of French economy, although the 2018 was the first year after 2006 with no increase in this ratio. Moreover, the constraint government spending as percent of GDP (56% for 2017), compared to the previous years, and the enhanced exports (31.3% for 2018) are steps to the right direction for the French economy in order not to face a debt crisis. The Current Account is still at the negative area but at the lowest level of the decade reaching -0.33% of GDP, a level which was reached last time in 2007. Additionally, the fact that 10 years bond yield is plummeting (65 base points), following the general trend in Eurozone, displays the possibility of French economy to be less relied on government spending and debt generation.
France: Debt to GDP Ratio (10-years Period)
Figure 1: TRADINGECONOMICS
The interest rates of France have been kept at a zero level since the beginning of 2016 and the quantitative easing policy seems to be a status quo for the last years. The deficit originated from the fiscal easing strategy accounts for only 0.4% of French GDP and could be balanced, since French economy characterized by high structural budget deficit.
France faced a turbulent period during the end of the last year. Protests, impelled by the so called “yellow vests” movement, outbroke all over the country, leading to disrupting business. Consequently, private sector’s contraction occurred for the first time in a 2 and a half years period for December and January.
France: Manufacturing PMI (5-years Period)
Threshold of 50
Figure 2: Source:TRADINGECONOMICS
Consumer Confidence Index: France (5-years period)
Long-term Average
Figure 3: Source: TRADINGECONOMICS
The fast rebounding Consumer Confidence Index, 5 points above the level of November, witnesses increased confidence of French households about their future financial situation. However, is still below the average of the long-term period and the messages are still mixed; This fact does not let as posing well-reasoned judgements about the mid-term course of the consumer spending in France. The composite PMI index of France, as it was expected after protesters’ movement, fell during this 2-month period, at the range of 48 to 49, but we cannot assume that this values reflect the mid-long term prospects of the French economy, especially because the same index, before the outburst of the yellow vests, was standing 4 points above the threshold of 50. Moreover, the shrinking of the composite PMI is mainly stemmed from the private services sector, with the manufacturing PMI presenting strong recovery during January standing at 51.4 (24/01/2019) points and almost exhibiting a slight expansion upcoming phase for the manufacturing sector in France, which is of higher interest since France’s ETF is composed by more manufacturing companies than services ones . Generally, French economy is the second largest of Eurozone and displays a historical macroeconomic stability. All these factors do not justify a potential underweight of France in our portfolio, even though during the last period the situation there was not very quiet, with many analysts expecting a prolonged contraction of French economy. We decide an almost neutral investing stance with a slight increased weight because there are indications that France engages a rolling reform strategy for its economy to overcome some of financial “ills”.
Ireland: Macroeconomics Analysis & Financial News
The Irish economy passed through tough times during the recent European debt crisis since Ireland was the only northern European country to deal with a financial crisis of such an extent. The austerity measures, which were imposed as a remedy to the debt crisis, brought back on track the Irish economy, with “positive” growth rates of real GDP after a 2-year period of intense recession in 2008-2009. The economic growth of Ireland in real prices after 2010 was exceptional, reaching 25.02% in 2015 in Y-o-Y terms, although this was mainly attributed to an accounting gimmick. The intensive growth is partially slowed down during the last 2 years and now is estimated to be in a range of 4% to 3%. Taking into consideration the Q-o-Q growth rates during the last 2 years, we could determine the high volatility of growth rates in quarter basis, which even had negative values for the Q1 of 2017 and 2018. This is signal that the Irish economy will not continue to be in the phase of fast growth for a long time. The PMI indeces are still over the threshold of 50 which could not justify an upcoming reversion of the business cycle, but business confidence index is standing at -4 for the last quarter of 2018 and consumer confidence at 98.8(estimated to fall). However, we must pinpoint the fact that Ireland has zero government budget deficit for a first time since 2007.
Ireland: Exports as GDP% and the trade with U.K as GDP % for the previous fiscal year
Figure 4: Source: WorldBank & World Integrated trade solutions
The signals from the macroeconomic analysis of Ireland are mixed and they may even suggest an overweighting of Ireland in our portfolio, but we need check the whole context in which Irish economy is. Specifically, the possibility of a hard Brexit/No deal Brexit could have a disastrous impact on the economy of Ireland. In 2018, the trade balance of Irish economy was 33.1% of GDP, while the exports of goods and services constituted the 122.33% of GDP. All of these witness the high dependence of Irish economy in its trading activity and a No Deal Brexit will have a major negative impact on the Irish trade, since UK is one of Ireland’s most influential trading partner. Because of that we will not follow an aggressive investing strategy as regards to Ireland and we will moderate decrease the weight of Ireland in the benchmark index.
Sources:
- https://www.ft.com/content/3e535d24-23a7-11e9-8ce6-5db4543da632
- https://www.ft.com/content/844529ea-1b6c-11e9-9e64-d150b3105d21
WORLDBANK site
- https://www.ft.com/content/18c0a6e2-23d5-11e9-8ce6-5db4543da632
https://data.worldbank.org/indicator/NE.IMP.GNFS.ZS?end=2018&locations=IE&start=1960&view=chart
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