EZA 679: France Economy - Sectoral Outlook

10 May 2005

France; Sectoral Outlook: services to companies and construction sector to outperform
Eventually joining the pack of low growth countries: GDP to grow by 1.6% in 2005: Private Consumption: weakening of last resort support to growth; overall household spending expected to grow by around 2% in 2005 after 2.3% in 2004 Business Investment: subdued cyclical recovery amidst continuing capital spending abroad; expecting a sub 4% annual pace in 2005 after 3.3% in 2004 Inventories: adjustment for overhang built up in 2004 should weigh on 2005 growth Construction: housing strength abating but still a main driver for the economy Exports: continuing underperformance relative to world trade growth reflecting the strong € and well-known weaknesses, i.e. a bad geographic / product specialisation / positioning

SummaryAsset Conclusions: The current environment appears mostly neutral for stocks at current CAC40 levels with services to companies and construction sectors to outperform, neutral for the €, likely to remain range bound vs. $, also for short term rates with limited upside risks for bond yields, if any. Look for a likely short-lived sell-off/rally following a no/yes vote on the EU Constitution.

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