Macron Needs Second Term to Deliver on His Economic-Reform Agenda

Photographer: Ludovic Marin/Pool via REUTERS

French President Emmanuel Macron is expected to win another term in this month’s election, but a recent narrowing of his lead over far-right opponent Marine Le Pen has economists worrying that his plans to reform France’s economy could be derailed.

“Our long-held call that Macron’s economic reforms would turn France into the European Union’s growth engine over the next decade would be at risk with Le Pen at the helm,” Berenberg said.

A victory by Mr. Macron would ensure the continuity of the ambitious structural reforms started by the French president in his first mandate, economists say.

“Macron’s re-election would be positive for France as it would ensure the country continues to move along a path of reform, which is critical to boost economic growth, create jobs and promote a more inclusive society,” Tullia Bucco, economist at UniCredit, told The Wall Street Journal. 

President Macron has said that, if re-elected, he would pursue his reform agenda which on the economic front is aimed at enhancing competitiveness and longer-term growth potential, Ms. Bucco said.

“Macron will focus on growth enhancing measures that fit structural objectives in a post-Ukraine hypo-globalization world,” Mathieu Savary, chief European strategist at BCA Research, told The Wall Street Journal. He expects Macron to implement some pension reforms, increase military spending and put more funds toward energy independence.

Mr. Macron won his first term with an agenda that promised broad economic reforms. But executing this plan over the past five years has proven very complicated for the French president as he had to face a succession of crises: the yellow vests crisis, the Covid-19 pandemic and lastly the war in Ukraine, Charlotte de Montpellier, senior economist at ING, told The Wall Street Journal.

“A lot of effort went into fighting these crises, he has been less successful in implementing reforms, at least in comparison with his ambitions at the beginning of his mandate,” she said.

Much work remains to be done, notably on pension reform, the ecological transition and the desired reindustrialization of France, Ms. de Montpellier said. Nevertheless, she added that Mr. Macron has made progress on certain subjects, notably with regard to entrepreneurship, with France becoming more a breeding ground for startups, and with the increased flexibility of the labor market.

UBS notes that important reforms have already been put in place, including providing more flexibility in wage bargaining, lowering social security contributions, cutting corporate taxes and reforming the railway operator SNCF. These reforms have made France’s potential growth–the rate of growth that an economy can sustain over the medium term–rise above Germany’s, UBS said.

“Improved potential growth may also have helped the French economy so far to weather the Covid crisis better than other large Eurozone countries and the Eurozone average,” economists at UBS said. France’s real GDP in the fourth quarter of 2021 stood 0.9% above its 4Q 2019 level, compared with 0.2% for the eurozone.

“Probably one of the key reasons why Macron has remained relatively popular is related to the economy,” Rabobank said. Not only is GDP back above pre-pandemic levels, but the unemployment rate is also close to its past 50-year low, Giovanni Zanni, chief eurozone economist at Rabobank, said in a note.

Voters will keep a firm focus on the economy during this election. France’s headline inflation came in at 4.5% in March, well below the European historic high of 7.5% the same month, but still at a very high level. According to UniCredit, purchasing power is by far the main concern of voters, chosen by more than 60% of the citizens surveyed.

The French economy won’t be spared from the current stagflation episode caused by Russia’s invasion of Ukraine and growth will slow in the near term, Mathieu Savary, chief European strategist at BCA Research, told The Wall Street Journal. Inflation is elevated, which hurts real household income, confidence is weakening sharply and trade with Russia will grind to a halt, he said.

France, however, is in a better position to withstand the energy shock than most of its European peers, he said. France relies less on imported fossil fuel for its energy needs due to its large shore of electricity generation from nuclear power, according to Mr. Savary.

“The Ukraine war turned belief in the likelihood of an Emmanuel Macron election victory on 10 and 24 April into a sense of near-certainty,” Eurasia Group said. Macron, already strong in the polls, gained seven points in the two weeks after the war began. This was because three of Macron’s principal rivals carry heavy baggage as long-term defenders of Vladimir Putin.

However, Macron’s initial surge in the ratings after Russia invaded Ukraine has evaporated as Le Pen has exploited anxieties about the rise in the cost of living, Berenberg said. This has narrowed Macron’s path to victory over the past few days, putting his agenda for France’s economy at risk, according to the German bank.

Furthermore, polling institutes suggest that the abstention rate may reach 30%, exceeding the record-high rate of 28% that was recorded in 2002, adding uncertainty about the outcome.

For now, Mr. Macron is still the firm favorite to win the election, with Eurasia Group seeing an 80% likelihood of him being re-elected. But a rise in French bond yields after investors pondered the increased chance of a Le Pen victory this week shows that markets, like most economists, have serious concerns about what the alternative would mean for the French economy.

Write to Maria Martinez at