Macron’s sudden election decision causes downturn in French economy

New figures suggest that the French economy has taken a hit following President Emmanuel Macron’s decision to call a snap election. According to a survey of around 750 major companies in the country, business confidence and private sector output both dropped in June. The services sector, which includes industries such as hospitality and entertainment, also contracted by more than expected.

This decline comes after Mr. Macron took the surprise gamble of calling a national poll earlier this month. This decision was made after Marine Le Pen’s hard right National Rally (NR) party won around 32% of the vote in European elections in the country. The upcoming election, set to be held over two rounds of voting on 30 June and 7 July, has created economic uncertainty for some businesses.

A poll by IFOP on Thursday predicted that NR is on course to secure 34% of the vote, with the left-wing Popular Front party second on 29%. The poll also showed Macron’s Together bloc in third with 22% of the vote. Other polls have similar numbers for Mr. Macron and his allies. However, these poll numbers do not provide a direct forecast for the election’s outcome due to France’s two-round majority system, which can encourage tactical voting.

Some pollsters have suggested that Ms. Le Pen’s RN and its allies may fall short of a parliamentary majority as a result, although they could still end up forming the largest bloc. Economist Norman Liebke, from Hamburg Commercial Bank, stated that “the uncertainty of the upcoming elections has French businesses stalling and fearing tougher times.” He noted that some panel members in the survey linked lower activity levels to the upcoming elections. This was also reflected in new orders, especially in the service sector, which declined for the first time in three months.

Liebke also mentioned that output expectations for the coming twelve months have weakened, partially due to higher uncertainty about the upcoming election, but also due to higher geopolitical risks. However, economist Franziska Palmas, from research firm Capital Economics, believes that the impact of the election call should not be “overemphasized” since French economic indicators already started falling in May, before the political turmoil began.

Nonetheless, investors are closely monitoring France’s economic indicators, with uncertainty over the election adding to concerns that the country may soon struggle to finance its budget deficit. According to a flash purchasing managers index (PMI) report by S&P Global on Friday, business activity in the services sector slipped from a score of 49.3 in May to 48.8 in June. Any figure below 50 indicates a contraction, while any score above that represents growth. Economists had anticipated a reading of 50 for June.

S&P Global’s composite PMI, which includes both services and manufacturing, also fell from 48.9 to 48.2. This further confirms the decline in business activity in the French economy. The news comes after UK public sector debt hits 99.8% of GDP, retail sales rebound due to weather, and Microsoft regains the title of the world’s most valuable company. These developments all have an impact on the global economy and are closely watched by investors.

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