French reform, British uproar and a Fed hike
DUBLIN/LONDON (Reuters) – When British Prime Minister Theresa May called a snap election in April, then-French presidential candidate Emmanuel Macron was the one supposedly set to struggle to govern effectively with a parliamentary majority.
Seven weeks later, May has lost her majority and a novice party created by Macron looks set to win the biggest parliamentary majority for a French president since Charles de Gaulle’s 1968 landslide.
European Union leaders fear May’s dramatic electoral miscue will delay Brexit talks due to start this month and so raise the risk of negotiations failing, and the fallout will doubtless continue to dominate headlines this week.
So will the US Federal Reserve’s meeting, which is expected to bring a rise in interest rates.
But just as significant for Europe is the fact that the week is bookended by France’s two rounds of legislative elections, on Sunday and next Sunday.
Predictions can go wrong, of course. Just ask May. But if Macron does succeed in stomping on the opposition as polls suggest, he will be starting his tenure with clout to steer an economy in need of a bit of help.
French economic growth has been accelerating. The central bank said on Friday it now expected it to rise 1.4% this year, a tad above earlier projections.
Although that is the most since 2011, it is hardly robust and reflects what critics say is a rather sclerotic economic system – which Macron is promising to fix. This was underlined by industrial output unexpectedly slumping 0.5% in April.
The central bank also said France was again in danger of exceeding European Union budget-deficit targets with a projected cap of 3.1%, versus the EU’s 3.0% and the previous government’s 2.8% target.
There is an audit due next month. Prime Minister Edouard Philippe says he is concerned the old government may have let things slip.
BREXIT BLOW
In the middle of Britain’s expected week of political question, meanwhile, comes one of the bits of post-Brexit-vote economic data that UK citizens have actually felt – inflation.
It has risen sharply, mainly as a result of the pound’s dive against the dollar and euro that followed the referendum.
Economists polled by Reuters expect annual inflation to come in unchanged in May at 2.7%. It will not, of course, reflect the pound’s falls related to the election result.
Pay growth is seen falling to 2% in the three months to April, excluding bonuses – less than inflation and underscoring why many voters are unhappy.
May retail sales, on Thursday, are also expected to show some post-referendum blues, with a fall 0.8% monthon-month predicted, for a year-onyear rise of 1.4%, versus April’s 4%.
As for the Fed, its rate rise is pretty much expected, although recent weaker inflation data has added a bit of a question mark to what may come next.
There are also some expectations that the Fed may announce how it will reduce its balance sheet – all those things it has bought during periods of stimulus – as it seeks to normalize policy nearly a decade after the global financial crisis began.