21 July 2009

EZA 906 Report: France vs Germany/Euro Area

France’s economy in recession: last/less in, last/less out

• Whereas the current economic slump in the global economy and notably in the euro area is abating, the focus of attention is on the country specific differences.
• France has been mildly affected compared to Germany and the euro area average with GDP falling only by -3% compared to -4.5% of the euro area. The main reason being the generous fiscal policy prior to the downturn, but also the focus on domestic demand, ie consumption.
• With the global economy bottoming this relative advantage might now turn into a disadvantage with recovery prospects for Germany significantly stronger.
• France cannot necessarily bank on additional fiscal stimulus boosting consumption in 2010 and further out, whereas benefits from the global recovery may be more contained than in Germany, given France’s key exposure to low growth areas like the EU 15.

Asset conclusions: more modest recovery in France and fiscal reliance to be reflected in under performance of stocks relative to other euro area economies.

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