As the year 2024 draws to a close, the French economic and political landscape remains marked by major turbulence.
Thus, the markets operate in a climate of uncertainty accentuated by political instability, budgetary stagnation and a complex macroeconomic environment. However, this end of the year is also an opportunity to identify medium-term prospects and to propose the strategic adjustments necessary to seize opportunities in this difficult context.
The resignation of Prime Minister Michel Barnier, the appointment of François Bayrou and the absence of a budget adopted for 2025 put France in an unprecedented situation. With the National Assembly remaining fragmented into incompatible blocs, it seems difficult for the establishment of a new government to be able to ease tensions and initiate the structural reforms that our country so badly needs.
This situation fuels persistent uncertainty, with direct repercussions on the French economy. On the one hand, the wait-and-see attitude of households, coupled with a significant rise in the savings rate, limits consumption. On the other hand, companies are delaying their investments and recruitment in the face of an unclear environment. The job market is slowing, and the unemployment rate is expected to increase in 2025.
Furthermore, the renewal as is of the 2024 budget, in the absence of agreement on a new budget, will not be enough to avoid a deterioration in public finances. Thus, French sovereign debt should continue to grow, increasing pressure on the spread between French OATs and German Bunds, while the prospect of a recession becomes more and more plausible. How many subscribers to life insurance contracts in euros are unaware that their financial savings are largely exposed to French debt? There are certainly too many of them!
As for French stocks, the underperformance of the CAC 40 compared to the EuroStoxx 50 reflects its insufficient profit dynamic. Indeed, even if our large companies generate the majority of their turnover outside France, the fact remains that the risk of increased taxation of profits and dividends adds a worrying factor to monitor in 2025 .
As for French small and mid-caps, they are by definition much more exposed to France and should continue to underperform and will be the compass to watch carefully in the months to come.
The continued weakness of the euro against the dollar is expected to continue in 2025. Indeed, monetary policy divergences between Europe and the United States, as well as American protectionism, accentuate this dynamic. A potential rebound could, however, occur if Germany manages to adopt an expansionary fiscal policy after its elections in February 2025.
Due to European growth prospects lower than those of the United States and a more business-friendly American economic policy, an underweighting of European stocks becomes strategic.
The sustained growth of the American economy, stimulated by key sectors such as artificial intelligence, semiconductors, energy and arms, attracts many investors. Our teams continue to favor today, particularly within the framework of the management of the Optigest Monde fund, American markets where growth prospects are more certain and where public policies are more oriented towards innovation.
