What Lies Ahead For France ETFs?

The French economy grew slower than estimated, per the Bank of France, primarily owing to a slowdown in manufacturing activity. The bank’s lower growth estimate for the first quarter is indicative of a somewhat broader slowdown in the Euro zone. European Central Bank (ECB) Executive Board member Benoit Coeure thinks the Euro bloc is witnessing a correction rather than a slowdown, per a Reuters article.

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France GDP growth estimate for the first quarter was cut to 0.3% from 0.4% predicted earlier, the lowest since third-quarter 2016. The slowdown was primarily led by cooling down of the manufacturing sector. The central bank’s business sentiment indicator for the manufacturing sector dropped to 103 from 105 in the previous month, showing signs of a cool down in the economy.

Adding to the agony of French president Emmanuel Macron, the French economy might see more pressure if unions disrupt his planned changes for the rail network and the education system. It could severely hamper industrial production in the short term, although the long-term impact is expected to be relatively less severe. Per a Bloomberg article, Air France KLM stated that seven days of stoppages have led to a decline of $210 million in operating income.

Macron is seen as a business-friendly president. Last October, Macron had revised labor rules that give French companies the power to negotiate. The economy’s public deficit shrank to a better-than-expected 2.6% of GDP in 2017, the first time in a decade that it lagged the EU’s 3% limit.

Per Labor Ministry's statistics, unemployment rate decreased to 8.9% in the three months to December compared with 9.6% in the previous quarter. However, challenges still remain, as Bloomberg Economics expects GDP to take a 0.1% hit due to weather-related troubles and a 0.2% blow if the strikes are fully implemented.

Let us now discuss the most popular ETF focused on providing exposure to the French economy (see all European Equity ETFs here).

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