The French economy may well surprise on the upside this year irrespective of who is elected as President. Fast-growing tech companies will help to underpin the recovery. A new start-up ‘campus’ is set to open in Paris in April this year, housing 1,000 technology firms. Reforms proposed by François Fillon could unlock France’s full potential, if he is successful in May.
Philip Hammond’s warnings over the weekend that the UK is prepared to engage in a ‘race-to-the-bottom’ on tax rates may also play into Mr Fillon’s hands. The centre-right candidate will argue that France risks being left behind in the global race to cut corporation taxes. This would diminish France’s competitiveness, jeopardising entrepreneurship and jobs growth: the electorate needs to back Mr Fillon.
Nevertheless, the cyclical uptick in the Eurozone has – as expected – put a floor under the euro. Eurozone exports climbed 3.3% m/m in November and the 12-month moving total for the trade balance was just shy of the peak in September last year. If both the Eurozone and the US cut corporation taxes, the euro will benefit: markets are not priced for a recovery in the former. That said, it is far from clear whether the Eurozone will be able to close the yawning technology gap vis-à-vis the US. New data protection laws set to come into force by May 2018 could undermine the growth of Europe’s start-ups.
Summary:
- Positive economic data in France and Germany
- Race to cut global corporation taxes may play into Fillon’s hands, underpinning recovery in France
- However, new European Commission data protection laws threaten Europe’s start-ups
