LIVE MARKETS-More of the same for France this year, say BofA

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com.

MORE OF THE SAME FOR FRANCE THIS YEAR, SAY BOFA

Political turmoil meant 2024 was a pretty grim year for French assets, and with no solution in sight, BofA Global Research see more of the same.

In 2024, the CAC40 fell 2.5% .FCHI compared to a 6% gain for the Stoxx 600 .STOXX (not to mention a 20% jump in the S&P 500), and the spread between French and German 10 year yields began the year at 52 bps and finished it at 82.

The snap 2024 parliamentary election delivered a hung parliament, and Emmanuel Macron's choice of Prime Minister, Michel Barnier, failed to pass a deficit-tightening budget, and lost a vote of no confidence.

Things don't look much better for his successor, Francois Bayrou, and while he did survive a no confidence vote this week, it doesn't help much.

"2025 is all about idiosyncratic policy uncertainty, fragile public finances and downside risks," BofA said in a Friday note.

"Last year's deficit slippage and snap parliamentary election delivered meaningful change to our view on the French economy: Growth will be lower, deficits larger, the new government under Prime Minister Bayrou possibly as vulnerable to the absence of a parliamentary majority (or the risk of a majority against the government) as the previous one."

"As a consequence, market sentiment probably more fragile for the foreseeable future, with 10y OAT-Bund spreads probably stuck at or above 80bp."

They expect the persistent economic policy uncertainty to weigh on domestic demand and capex and so have cut their growth forecast for 2025 to 0.6% and 0.9% for 2026.

They see France's budget deficit at 5.9% for 2025, and that's with a deal struck by the end of Q1 with around 15 bln euro of deficit adjustment. A delay beyond Q1 or no adjustment, would keep the deficit above 6% for another year, they say.

(Alun John)

FOR EARLIER LIVE MARKETS POSTS

SHARES RISING, FTSE 100 AT RECORD CLICK HERE

EUROPE BEFORE THE BELL: BAD NEWS IS GOOD NEWS FOR THE FTSE CLICK HERE

MORNING BID: CAUTIOUS END TO WEEK AS TRUMP INAUGURATION LOOMS CLICK HERE