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CONTRIBUTORS

Anujeet Sareen, CFA

Portfolio Manager
United States

France has been in the news lately for mounting political turmoil marked by Prime Minister Lecornu’s abrupt resignation, deepening budget battles, credit-rating warnings, and nationwide protests. The country’s fiscal deficit ranks among the largest of any advanced economy.

France already has one of the highest government revenue levels (as a % of GDP) among advanced economies, and raising taxes to address its fiscal woes—despite Macron’s campaign for lower rates—would risk igniting further protests.

The French government has a spending problem. The chart shows government expenditures (as a % of GDP) vs. a handful of European Union (EU) peers.

France’s economy, which long tracked EU growth, has slowed since 2023 even as the EU accelerated, with broad-based weakness across consumption, investment, and trade.

Growth in real household income and consumption has slowed.

Industrial production has continued its long-term decline, while capacity utilization remains flat.

France’s unemployment rate is high compared to the EU. The country faces an aging demographic challenge, and encouraging skilled immigration could help. Although the government has reduced unemployment benefits, they remain elevated relative to peer countries.

Since late 2024, French inflation has been weaker than the rest of the region.

Since the political/budget turmoil began in 2024, French government bond spreads have traded wide to their previous range vs. German bonds.

WHAT ARE THE RISKS?

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Commodity-related investments are subject to additional risks such as commodity index volatility, investor speculation, interest rates, weather, tax and regulatory developments. To the extent the strategy invests in a concentration of certain securities, regions or industries, it is subject to increased volatility. Investments in companies engaged in mergers, reorganizations or liquidations also involve special risks as pending deals may not be completed on time or on favorable terms. 

International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

WF: 8857811

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