Why the French economy is outperforming Germany – but can it last?

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It’s not all about Emmanuel Macron, but his policies certainly helped.

The French economy has turned out to be one of the best-performing in Europe this year, to the surprise of economists, and possibly the French government itself.

French GDP beat forecast in the third quarter, up 0.3% year-on-year, contrasting with Germany, where global output (data out next week) may have stagnated in the same period, after a contraction in the second quarter. For the first time in years, France will grow much faster than its bigger neighbor.

The French economy will grow by 1.3% this year against 1.1% for the whole eurozone and 0.4% for Germany, according to European Union forecast published Thursday.

Most striking in the French performance is that it is not only driven by domestic demand. That would be expected after the government embarked on some extra spending at the end of last year to try to curb the “yellow vest” protests that took French major cities by storm.

As noted by AXA chief economist Gilles Moec, private investment is also rising strongly, up 5.5% in the third quarter. This comes in stark contrast with the trends in other major developed economies.

Macron’s tax reforms early in his presidency, his overall business-friendly proclamations and policies, have brought about a steady improvement in companies profits, which in turn benefits investment. France received more foreign investment projects than Germany in 2018, according to Ernst & Young.

And since investment is mostly funded by borrowing in France, French companies have taken full advantage of the loose-money policies of the European Central Bank, Moëc notes. Maybe Macron should send a thank-you note to former ECB president Mario Draghi?

The good economic news does not seem to do much for Macron’s popularity. The French president remains “structurally unpopular” with voters, a pollster has noted. For some of his allies, this should be taken as a proof that his “tough” reforms are working. For others, it is a reason to worry that the good days might not last.