Our comprehensive assessment of France's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect France, as well as the latest industry developments that could impact France's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in France before your competitors.
France Country Risk
While the rest of the eurozone is showing early signs of recovery, the French economy continues to lag behind the region. While the improving regional economic outlook may provide some limited upside potential, this might not be sufficient to drive a recovery in French manufacturing unless the country first addresses its outstanding competitiveness issues.
While we are likely to see a gradual increase in positive rhetoric towards structural reforms, Hollande is unlikely to become an ambitious reformer of the French model. While we expect some reformers will take baby steps in the right direction, the ability of Hollande to implement sweeping reforms will be restrained by divisions within his own party and core support base, and resistance from the proliferation of special interest groups which will make unilateral reform a troublesome and compromised process....
France Industry Coverage (20)
BMI View: We believe the grain s sector in France will continue to outperform other agribusiness segments in terms of production growth. This will be reinforced by the ongoing reforms of Common Agricultural Policy subsidies , Â which are likely to have more of an effect on dairy and livestock farmers than grain farmers.
|Agribusiness Market Value|
|BMI Market Value By Commodity (2010-2018)|
BMI View: In 2014, we forecast a 0.9% drop in vehicle sales. This comes from a 1% forecasted decline in the passenger car segment and 0.3% fall in commercial vehicle (CV) sales.
We expected pent-up demand following several years of decline and low base effects from 2013 to boost the market over the course of the year. However, the country's weak consumer story is limiting purchases more than we previously envisaged, and we believe this will continue to weigh on car sales in the coming months. Accordingly, we now forecast a drop of 1%.
Corporate lending remains subdued by the macroeconomic environment, with businesses continuing to push ahead with deleveraging. This is likely to continue throughout 2014. Furthermore, capacity utilisation remains low, and we expect that most businesses will hold off further capital expenditure and other projects until the economic outlook...
Defence & Security
France Defence & Security
BMI expects French defence expenditure to reach USD49.9bn in 2014. On average, we expect France to spend USD50.6bn on defence annually over the next three years. We foresee defence spending declining to USD49.5bn in 2015, and then to USD49.3bn the following year. Nevertheless, the defence budget could increase once again to USD50.9bn in 2017, ending the decade at USD52.6bn.
In mid-June 2014, French defence ministry Yves La Drian spoke of his confidence that French defence exports would increase in value during 2014. Several factors are driving France's defence exports, not least of which continues to be the large market for defence modernisation in the Middle East. Beyond the Middle East, French military suppliers are seeing a heightened demand for their products in Asia and Latin America.
We have given France a security risk rating of 87 for Q414. On average, the country scores a security risk...
Food & Drink
France Food & Drink
BMI View: Â France's economy is still lagging substantially behind regional peers. The outlook for French households did not improve significantly over Q114, however, with unemployment continuing its steady ascent to record highs. While consumer confidence has risen in recent readings, we see few fundamental factors supporting this growing optimism. Food retail sales are now down, indicating that momentum supporting the sector has waned. Still, the importance of the food industry for the economy and the fact that France is one of the few European countries with a growing, young population will leave food consumption growth relatively steady over the coming years.
France Freight Transport
BMI View: We believe the French economy will show signs of a protracted recovery in 2014, but is expected to struggle with long-standing labour issues and uncompetitive exports. These constraints are likely to weigh on the country's freight sector, and any resolution is unlikely until structural concerns in France's labour market are addressed. As discussed in this report, however, that task is proving a challenge for the government - a fact most evident in the freight sector itself.
Nevertheless, some freight modes are forecast to outperform others over the year. If the French economy can match the pace of recovery seen among its peers, its freight sector will benefit from the uptick in regional demand.
Headline Industry Data
France Information Technology
BMI View: Â W e downgraded the outlook for the French IT market in Q4 2014 due to a deterioration in the economic outlook. We were already forecasting slow medium term growth as a result of high penetration of products and solutions and cuts to public spending , and France is now expected to be a regional underperformer . However, France will continue to be a leading global IT market for due to its scale and the fact it is home to leading IT services providers and a growing cybersecurity ecosystem. Meanwhile, enterprise spending on cloud services including S oftware- a s- a - S ...
BMI View :Â We have further downgraded our construction industry real growth forecast for France in 2014 to -4.2% on the back of weaker than expected industry data for H114 and overall economic underperformance. As such, we expect France's construction industry contraction to continue over 2015, making it eight years of consecutive negative growth.
Key Trends And Developments
The outlook for France's residential sector is pretty bleak. We believe the housing market is not particularly attractive to investors, implying that investment flows will keep growth at a low level. This is in addition to a banking sector in bad shape, tightening borrowing conditions, and the declining purchasing power of French households.
Despite the weak performance in France's...
BMI View : At first glance, the prospects for France ' s massive insurance sector look very uninspiring. After years of stagnation in premiums, in both of the major segments, it remains unlikely that there will be meaningful growth in the forecast period. As of mid-2014, it is clear that the weakness of the economy is having an impact on the sector , particularly in the non-life segment. Investment earnings are being crimped by very low interest rates. Solvency II has increased the amounts of capital that the insurers must hold relative to any level of business. Nevertheless, we are confident that France ' s very large, complex and sophisticated (mainly) composite groups will deal easily with the challenges that they face. Two of the leaders have demonstrated formidable ability to...
France Medical Devices
Espicom Industry View : Although France continues to rank among the top five largest medical device markets in the world , growth rates are modest by global standards. The continuing drive to hold down costs and the more restrictive measures being implemented to regulate medical device expenditure in a similar manner to drug expenditure will continue to constr ain spending on medical devices . Â Having implemented measures to curtail spending on reimbursable devices in the ambulatory sector, the authorities are starting to pay much greater attention to spending in the hospital sector through the PHARE hospital...
BMI View: France's metals sector is set for an extended period of very modest gro wth through to the end of our forecast period in 2018 , as major producers hold back on investment. Steel will continue to dominate the country's metals industry, but we do not expect any significant new investment. ArcelorMittal and Rio Tinto , the two largest producers in the country , are facing an increasingly hostile and competitive operating environment , with steel still cheap on a relative basis and aluminium...
Oil & Gas
France Oil & Gas
BMI View: Low-levels of upstream and investment and a high import burden will persist in France absent a reversal of a government opposition to shale gas exploration. Some senior officials and powerful business interests have expressed support for shale gas exploration, but the issues remains politically contentious. In the downstream sector, further refinery closures are likely given market conditions that will see margins remain weak over the course of our forecast period. Â
The French petrochemicals industry's road to full recovery is likely to be slow and fraught with obstacles as the industry faces structural challenges, a lack of competitiveness and tenuous growth in domestic consumption.
France has witnessed a period of decline in petrochemicals which saw output of basic chemicals, fertilisers, plastics and synthetic rubber declining by 4.5% in 2012 and 1.7% in 2013. However, there are signs that the industry is slowly turning the corner after a period of consolidation. In H114, plastic output grew 2.6% year-on-year (y-o-y) on average, while rubber production rose 2.0%.
We remain sceptical that any major improvements in French exports will prove sustainable, given obstructive bureaucracy, high labour costs and the inflexible labour market that lies at the heart of ongoing competitiveness issues. Furthermore, euro resilience remains a considerable downside risk to French exports, which...
Pharmaceuticals & Healthcare
France Pharmaceuticals & Healthcare
BMI View: Â Falling government consumption does not bode well for the pharmaceutical industry. We believe that in order to maintain appropriate pharmaceutical spending levels, the government will increase its focus on cost containment within the pharmaceuticals and healthcare sector, with a particular focus on medicine prices.
Headline Expenditure Projections
Pharmaceuticals: EUR33.94bn (USD44.80bn) in 2013 to EUR33.06bn (USD44.30bn) in 2014; -2.6% in local currency terms and -1.1% in US dollar terms.
Healthcare: EUR245.32bn (USD323.82bn) in 2013 to EUR252.47bn (USD338.31bn) in 2014; +2.9% in local currency terms and 4.5% in US dollar terms.
Risk/Reward Ratings: France is...
BMI View: Â On July 30 the French cabinet passed the first substantial energy bill. The long awaited act is the first concrete step to fulfil the electoral promises by President Francois Hollande to reduce the share of nuclear energy in the electricity mix from the current 75% to 50% by 2025. The bill confirms the proposal presented in June by Energy and Environment Minister SÃ©gol Ã¨ne Royal to cap nuclear energy at 63.2GW , the current levels. The bill then primarily focuses on boosting energy efficiency and energy sufficiency. H owever , it fails to address the question of returns of renewable energy. While it will contribute to a slowdown, or even reduction, in electricity demand, without actively addressing growth in renewable...
France Real Estate
BMI View: Following strong growth in the Parisian office and retail sectors in 2014, we also expect the capital to bear the vast bulk of the commercial real estate's growth in 2015. This development can however not distract from the fact that beyond the city's borders, little growth and transactional activity is taking place, due to the difficult macroeconomic situation in the country . Â
The French commercial real estate market has experienced some upwind over 2014. Especially - yet unsurprisingly - Paris has seen significant growth in its office market and some renewed demand in its retail sector. Overall demand and transactional activity outside the French capital, however, remained curtailed. The same goes for the industrial property sector which continues to suffer from a stagnating economic recovery and low export...
BMI View: Â While we are maintaining our forecasts for the non-hydropower renewable energy sector in France this quarter, the passing of the long-awaited energy bill at the end of July 2014 marks an important step forward towards the reduction of the country's reliance on nuclear energy sources over the medium to long Â term. However, we note that the proposed policy mechanisms are mainly aimed at the reduction of electricity demand and greater energy sufficiency and do not address the question of returns for renewable energy. We believe this may lead to an overall increase of nuclear energy in France's electricity...
BMI View: Â The launch of Free Mobile in Q112 has had a major impact on competitive dynamics in France, adding to pressure on revenues from regulatory measures such as MTR cuts. These developments have put pressure on operators' financial performance and resulted in a revision of their strategies. Compounding the pressure on revenues from competition and regulatory changes is the shift in consumer behaviour as they increasingly adopt IP alternatives, leading to declines in the volume of voice services being consumed - which is not yet being offset by rising usage of non-voice services. In the wireline market, more players are entering the converged services market; the rise of triple- and quad-play packages makes it difficult for established players to continue growing. Instead, they are focusing on extracting more value from those customers they retain....
Â BMI View: France ' s mature tourism market means there is less potential for new market entrants, but the enduring popularity of the country and strong political support of the government towards the tourism industry means there is still a strong return to be had for established competitor .
The geographical location encourages large number of European tourists (the UK are the single largest contributor to arrival numbers) and the chic, stylish reputation of Paris encourages a large (and growing) number of middle class tourists from BRIC countries. For example, we predict a 31% increase in Russians visiting France from 2015-2018, with Chinese arrivals increasing by 19% in the same period.
Partly driven by this, there has been an increase in high end acquisitions and renovations, with a number of luxury...
Continuing investment into France's water sector is resulting in substantial improvements across all areas as well as providing a flow of opportunities for investment. The well-regulated sector is also benefiting from high standards brought on by tighter regulations. Distribution efficiency is improving as aged infrastructure is replaced, while wastewater treatment increases and water quality rises. We see the initiation of many new projects within the sector as being a key point of attraction for foreign investors.
In order to meet EU regulations with regard to water quality, the French government is ready to initiate many new projects within the sector. To allow this sudden increase in development and to cope with the surge in demand for a skilled workforce and management teams, the government is encouraging large outside investment. The abundant investment opportunities coupled with very favourable legislature, suggests the sector is...