You are here: Home - Investing -

Will France be the next European domino to fall?

0
Written by:
30/10/2012
France’s economy is looking increasingly troubled and it could be the next eurozone domino to fall, investors at Legal & General Investments and Carmignac Gestion have warned.

While Spain’s financial creditworthiness has grabbed the headlines in the past few months, attention is slowly turning towards France as bleak economic data continues to roll out of one of Europe’s largest and most important economies.

Standard & Poor’s has already stripped France of its AAA credit rating in January, pointing to “systemtic stresses” in the eurozone. The country remains AAA-rated by both Moody’s and Fitch, though with a negative outlook in both cases.

Now both L&G Investments and Carmignac are warning investors they may have underestimated the severe weakness in France’s economy.

Michel Canoy, manager of the £1.3bn L&G Fixed Interest Trust, said France can no longer be considered part of core Europe because of its failure to address its soaring deficit, and he has sold much of his exposure to the country’s debt recently.

“France could spring a very nasty surprise next year. It is aiming to reduce its deficit by 3% in 2013 and 2014 but needs to find €33bn in order to achieve its targets, so the country is facing a massive challenge,” said Canoy.

“We believe growth will come in at -0.5% in 2013, well below the French government’s target of 0.8%. Small and medium enterprises are moving out of France and coming to the UK, which will stunt growth.”

Canoy has moved underweight France in recent weeks, pumping the proceeds into Italian credit, which he believes has a more stable financial position.

“Italy has a huge debt profile but under Mario Monti’s stewardship the deficit targets will be met,” said Canoy.

“To meet the IMA corporate bond sector’s minimum yield requirement we need to take on some peripheral debt, and with Italian corporates and financials looking cheap we believe it is the best one to overweight.”

Edouard Carmignac, the founder of Carmignac Gestion, agrees France is set to slide into recession imminently.

Speaking at his firm’s quarterly investment conference in Paris, the French fund manager said there was no sign of his country beginning the ‘necessary’ structural reforms which are needed to fix the economy.

He pointed to manufacturing indices which suggested France was the worst performing nation out of a group of 20 peers in September, and said a slowdown in business confidence was set to accelerate.

‘Business activity in France is going to plummet in the next few months. We will have to do something,” he said.

France’s economy has failed to take-off since the end of 2011, with zero growth for the last three quarters.

The central bank said last month it was set to contract by 0.1% in the third quarter.

Tagged:

Tag Box

Debt

Pension

Spending

Financial fitness

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

Five ways to get on the property ladder without the Bank of Mum and Dad

A report suggests the Bank of Mum and Dad is running low on funds. Fortunately, there are other options for st...

The essential Your Money guide to the April 2018 tax changes

As we head into the 2018/19 tax year, a number of key changes take place to existing policies while some new i...

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

YourMoney.com Awards 2018

Now in their 21st year, our awards recognise the companies offering the best products and services to consumers

Money Tips of the Week

Read previous post:
2221066-fireworks
‘Mischief week’ costs British households £1.4bn in repair bills

Over 5m households have suffered property damage due to ‘mischief week', according to Santander Home Insurance.

Close