Macron faces pressure to change tack as French unrest slows economy

PARIS (Reuters) – President Emmanuel Macron met French lawmakers, trade unions and business groups on Monday before giving a national address when he will respond to violent anti-government protests convulsing the country.

Heaping pressure on Macron, the Bank of France said the nationwide unrest was stunting the economy, forecasting that growth would slow to a virtual standstill in the fourth quarter.

The president’s address at 1900 GMT comes 48 hours after rioters fought street battles with riot police in Paris, hurling missiles, torching cars and looting shops in another wave of unrest that has challenged the 40-year-old’s authority.

Macron faces a delicate task: he needs to persuade the middle class and blue-collar workers that he hears their anger over a squeeze on household spending, without being exposed to charges of caving in to street politics.

“The president indicated that there are several paths opening up before him, around this idea of a social pact, taxes and the central question of France’s energy transition plan,” Hugues Vidor, leader of business lobby group UDES told Reuters after he met Macron at the Elysee Palace.

The “yellow vest” protests – named after the fluorescent safety vests French motorists must carry – were born out of a backlash against fuel prices and the cost of living for the working poor. However, they have become a broader anti-Macron rebellion and this month central Paris has witnessed the worst violence since the 1968 student uprising.

The revolt has raised questions over Macron’s ability to reform France. A former investment banker, he was elected on a promise to ease taxes and liberalize an economy long choked by regulation, but in doing so has opened himself to charges of favoring the wealthy while doing little to help the poor.

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Record levels of employment and new business creation point to structural reform that may boost France’s long-term competitiveness. But tax cuts for big business and the wealthy have earned him the moniker “president of the rich”.

The central bank’s downwards revision for fourth quarter growth to 0.2 percent from 0.4 percent will complicate Macron’s task of finding concessions to placate the yellow vest movement.

Finance Minister Bruno Le Maire said the nationwide tumult would trim 0.1 percent of a point off national output. His deputy projected growth this year would round out “closer to 1.5 percent”.

CRISIS

In a sign of the perceived heightened risk of holding French debt, French government bond yields rose on Monday, pushing the gap over safer German debt to its widest since May. Ten-year bond yields hit 0.725 percent FR10YT=RR, almost 8 basis points above 4 1/2-month lows hit last week, before easing to around 0.69 percent, still higher on the day.

On the Paris bourse, shares in airport operator ADP (ADP.PA), retailer Casino (CASP.PA) and hotels company Accor (ACCP.PA) all fell.

Supermarket revenues slumped 15-20 percent on Saturday, the retail umbrella group FCD said.

Upscale department store Printemps, which shut its flagship store in Paris on Saturday, said it had suffered a 25 to 30 percent slump in sales since the unrest began. “There has been a colossal loss in sales and they won’t be recouped,” Pierre Pelarrey, who runs Printemps Haussmann, told Reuters.

The economy’s slow-down will worry Macron, who faces huge pressure to make concessions while also keeping France’s budget deficit below a European Union limit.

Responding to the demands of the yellow vests for a higher minimum wage, lower taxes, and better retirement provisions will leave France in danger of breaching EU deficit rules.

“The big picture is that the budget deficit will worsen and political problems will make cuts to spending hard,” said Rabobank rates strategist Lyn Graham-Taylor.

The government’s latest estimates are for a deficit equal to 2.8 percent of GDP in 2019, just below the EU’s 3 percent cap – a target Macron has cast as critical to meet to cement his reformist credentials.

Le Maire said France faced a crisis and that Macron’s task was to heal a nation divided by the forces of globalization.

The finance minister reiterated his desire to accelerate tax cuts but suggested he was not in favor of reinstating a wealth tax.

“Does the wealth tax help reduce poverty, reduce our debts, reduce public spending? No. If you want to hunt for money, go knocking on the doors of digital tech companies,” Le Maire said.

(For a graphic on ‘French economic growth’ click tmsnrt.rs/2zQhrf0)

(For a graphic on ‘Impact of unrest on stocks’ click tmsnrt.rs/2RDxLXu)

(For a graphic on ‘Impact of unrest on bonds’ click tmsnrt.rs/2JRSanb)

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