The success of Macron’s second term hinges on the outcome of June’s legislative elections
The outlook for MNCs operating in France may be brighter than under a Marine Le Pen presidency, but challenges will inevitably arise. Emmanuel Macron has already signaled he’d be willing to water down his pension reforms, and further energy measures will delay the French state’s much needed slimming. Additionally, the emergence of a more fractious polity and the rising cost of living will lead to strikes and protests, weighing on consumer and business sentiment.
MNCs should closely monitor polls as the legislative elections draw near. While a majority for Macron’s party is currently the most likely outcome, a lot could happen over the next six weeks, with a sharp acceleration in inflation or cessation of energy exports from Russia posing a significant risk that France ends up with a “cohabitation” outcome. This means MNCs will need to engage in flexible strategic planning that reflects a more uncertain policy environment. However, regardless of the outcome, MNCs can expect inflation and the war in Ukraine to continue to chip away at consumer and business confidence over the near term, with government measures only partially relieving financial pressures on firms and consumers.
Overview
Macron was re-elected president with 58.5% of the vote on April 24. However, the 41.5% of the vote garnered by Le Pen marks a historic high for her far-right party, Le Rassemblement National, formerly known as Le Front National. Notably, Macron lost votes across a variety of regions and all income groups. Conversely, Le Pen picked up support among middle-income earners for whom the cost-of-living crisis was the number-one election issue.
Key to Macron’s victory was the 42% of the electorate who voted for the far-left candidate, Jean-Luc Mélenchon. However, this segment of the electorate remains highly dissatisfied with Macron. Mélenchon’s strong showing in the first round of voting is expected to fire up his base in time for June’s legislative elections.
Our View
Macon may have secured a second presidential term, but his mandate is considerably weaker than five years ago. Notably, the margin of victory over Le Pen was halved, and a majority of French voters displayed a preference for extremist candidates in the first round. Overcoming these deep societal divisions will prove a tall order and could be further complicated by the outcome of legislative elections in June.
The most recent Harris Interactive poll suggests Macron’s party would win a majority of seats even without the support of the conservative Les Républicains. However, MNCs shouldn’t take this outcome as a given. With inflation continuing to rise and the war in Ukraine likely to escalate, there is a strong probability that developments could bolster support for parties on both ends of the political spectrum.
FrontierView believes there is a 25% chance that Macron’s party could lose its majority in the legislature. This would result in an arrangement known as “cohabitation.” Macron would remain head of the armed services and in charge of foreign policy, but the government led by the opposition would hold sway over all other policy areas. Although Macron could technically appoint whomever he likes as prime minister, parliament has the power to force a government to resign. As such, Macron would need to ensure his pick has the support of France’s legislature.
While Mélenchon’s party, La France Insoumise, will likely outperform like it did in the first round of the presidential vote, Macron would be more inclined to form a cohabitation arrangement with the conservative Les Républicains. The parties would find common ground on issues such as pensions, labor market reforms, and tax cuts. However, Les Républicains would likely push for a faster reduction in government spending, which could curtail some of Macron’s investment plans.
Even if Macron does hold onto his majority, he will probably struggle to fully implement all his campaign promises. MNCs can expect additional labor market reforms that support employment and, by extension, demand for B2C goods. However, pension reform will prove more difficult, with Macron already signaling he could water down his proposals. Lastly, higher spending on defense and energy would likely pass, implying a slower reduction in government debt.
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