France's economy may have received a boost from the Paris Olympics in the third quarter, according to the Bank of France. However, political uncertainty continues to weigh on its stock markets.
ADVERTISEMENTAs the Paris Olympics wrapped up on Sunday, France's economy appears to have received a boost from the influx of visitors and increased spending in sectors such as hotels, restaurants, and museums, according to France's Tourism Minister, Olivia Grégoire.
Spending on hotels in cities hosting the Olympic events rose by 16% compared with the previous year, while tourism-related sales at museums and restaurants saw a 25% increase year-on-year, Gregoire told French paper La Tribune Dimanche.
Several institutional surveys suggest that the Paris Olympics are set to significantly bolster the French economy in the third quarter, outweighing the political uncertainties that emerged in late June.
The Banque de France anticipates economic growth between 0.35% and 0.45% for the third quarter, compared to a 0.3% increase in the first two quarters. This suggests that up to 0.25% of the growth could be attributed to the Olympics, with the economic benefits largely driven by ticket sales and TV rights.
In July, the national statistics institute, INSEE, also forecast that the Olympics would contribute 0.3% to the French economy's growth in the September quarter, potentially bringing overall growth to 0.5%.
Additionally, Visa data showed that consumer spending increased by more than 20% during the first weekend of the Olympics compared with the previous year, with foreign Olympics-related spending surging by 29%.
However, the full impact of these gains remains uncertain due to ongoing political challenges. The Banque de France's Chief Economist, Olivier Garnier, noted: "It's still too early to see how this uncertainty will impact hiring and investment decisions," referring to the weakening political position of President Emmanuel Macron.
Improved economic data
Recent economic data indicates that France has made positive strides in key areas, with the unemployment rate dropping to 7.3% in the second quarter, down from 7.5% in the previous quarter, marking the lowest level since the third quarter of 2023.
Meanwhile, annual inflation edged up to 2.3% in July from June, slightly below estimates of 2.4%. Although energy prices saw an acceleration, the increase in service prices softened. These developments are seen as positive for Europe's second-largest economy, despite ongoing political uncertainties likely to weigh on sentiment.
Amid the unexpected rise of the French far-right party, President Emmanuel Macron called for a legislative election. However, the outcome backfired on his centrist party, with no party securing an absolute majority to form a government, leading to a hung parliament. This result could potentially derail Macron's pro-growth policies, despite his success in securing a $16 billion (€14.6 billion) foreign investment pledge at the annual "Choose France" summit in May.
The Paris Olympics may, at least temporarily, stave off a downturn in business confidence as the world's largest sporting event overshadowed the political turmoil. According to the Banque de France, business uncertainty in the third quarter has eased to its lowest level since the final quarter of 2023, following a spike due to the snap election.
French markets remain underperformed
Despite signs of economic improvement, the French stock markets remain downbeat due to ongoing political uncertainties.
The benchmark CAC 40 has dropped nearly 10% since the EU parliamentary elections in early June, while the Euro Stoxx 600 index has declined by 5% over the same period.
The French banking sector has been particularly hard hit by concerns over potential political shifts and their impact on public finance. Meanwhile, French luxury consumer stocks have also struggled, as the global economic slowdown has dampened consumer spending, especially in China. The recent global market selloffs have further pressured French stocks.
However, the improved consumer spending and a pick-up in economic growth could influence company earnings in the third quarter. Sectors that may benefit from the Olympics include consumer stocks such as LVMH, Hermès, and Kering. Airlines like Air Liquide and Air France may also be worth watching.
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