French budget and political concerns return

With Isabelle Enos, Senior Investment Advisor, BNP Paribas Banque Privée and Edmund Shing, Global Chief Investment Officer, BNP Paribas Wealth Management

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Key Messages

1..French bond yields have risen as concerns over French growth and debt sustainability have started to rise. Today the French 10-year OAT yields 0.85% more than the equivalent 10-year German bund and yields more than equivalent Italian BTPs for the first time since the creation of the eurozone. French equities have also underperformed the broader eurozone this year, with the CAC 40 index gaining only 3% versus 11% for the broad Euro STOXX index.

2.The source of these concerns is threefold: i) the lack of improvement in the French budget deficit since 2021, still over 5% of GDP; ii) weaker growth performance versus the rest of the eurozone; and iii) the strong showing in recent 2027 Presential election polls of both Marine Le Pen (far right) and Jean-Luc Mélenchon (far left).

3.With the two rounds of the 2027 French Presidential election still just under 8 months away (18 April and 2 May), there is plenty of time for the electoral landscape to shift, particularly if a dominant centrist candidate were to emerge.

4.In the near term, the 2027 French budget will be the next challenge to navigate, with the potential renewal of the temporary tax on the largest French corporates on the table.