Attacks on the Paris offices of multi-billion dollar corporations earlier this month by protesters angry about pension reforms may have tarnished France’s image as a place to do business.
But behind the tumult, Europe’s second-largest economy has shown striking resilience since the pandemic, and is becoming an increasingly attractive destination for businesses and investors looking to expand or establish a foothold in the region.
France’s economy grew 0.2% in the first quarter of this year, its national statistics agency said Friday, after stagnating in the previous quarter. Across the 20 countries that use the euro currency, gross domestic product was weaker, ticking up just 0.1% over the same period.
It’s welcome news for France in a year so far marked by million-strong protests and strikes that have brought parts of the country to a standstill. Unions are demanding the government repeal the law that will raise the retirement age from 62 to 64.
More industrial action is planned for May 1. Yet the long-running protests are unlikely to leave a lasting dent in France’s economy, according to Charlotte de Montpellier, a senior economist at Dutch bank ING.
“Previous experiences of social tensions in France show that the economic impact is generally temporary and fully compensated by a rebound in activity in the following months,” she wrote in a note in March.
Manufacturing output rose 0.7% in the first three months of the year, official statistics showed Friday. Production at oil refineries surged by more than 13% after falling 11.4% in the previous quarter, when their staff went on strike over pay.
This year’s mass protests are just the latest in a succession of crises that have hit France since 2020. But its $2.8 trillion economy has held up comparatively well.
The International Monetary Fund forecasts that the French economy will grow 0.7% in 2023 while its closest peers, Germany and the United Kingdom, are expected to shrink.
In a report in February, the IMF said France had enjoyed a “strong economic recovery from the pandemic,” adding that its more “limited reliance” on Russia’s natural gas had helped keep inflation below price rises in other European countries more dependent on Moscow for energy supplies.
As in other economies, inflation in France has hit multi-decade highs in recent months — pushing some of its smaller businesses toward breaking point — but price rises peaked at a lower level than the euro zone average. Consumer price inflation in France averaged 5.9% last year, compared with 9.2% for the European Union.
That’s partly thanks to the billions of euros the French government spent in 2022 to shield households and businesses from soaring energy prices.
France has also benefited from its traditional advantages. It has long boasted one of the highest rates of labor productivity among its industrialized nations, a booming tourist industry, and it is home to some of the world’s biggest companies, including L’Oréal, TotalEnergies and LVMH. The latter, on Monday, became the first European company to be valued at $500 billion.
Despite the country’s resilience, if the government is to invest more in its economy it needs to rein in “very high” levels of public spending, Jens Larsen, director of global macro-geoeconomics at Eurasia Group, told CNN.
France’s government debt, as a proportion of GDP, is among the highest in the European Union standing at 112% at the end of last year.
The country also has the second-highest tax burden among the 38 mostly developed countries that make up the the Organization for Economic Cooperation and Development, coming behind only Denmark.
Since 2017, when President Emmanuel Macron took office, the government has tried to liberalize the economy and encourage investment into its companies by introducing often deeply unpopular reforms that make it easier for businesses to hire and fire, and ease their tax burden.
The contentious pension changes are “critical” for “demonstrating that France is reformable,” Larsen said, adding that the planned measures would help boost the labor supply and put public finances on a sustainable trajectory.
Kay Neufeld, director of forecasting and thought leadership at the Centre for Economics and Business Research (CEBR), a UK-based think tank, makes a similar assessment.
“Macron is trying to make France and Paris a more attractive place to do business, and it seems to bear some fruit,” he told CNN.
Indeed, foreign investors poured nearly twice as much money into France last year as in 2021, and more than triple the 2019 amount, the year before the pandemic, according to data from the country’s central bank.
And the commercial real estate market in Paris, which includes offices, overtook London’s in the first quarter of 2023 in terms of the total value of sales, data from MSCI shows. Still, the United Kingdom as a whole remained the biggest market in Europe.
‘Momentum’ building for banks
Britain’s exit from the European Union has also been a boon for France’s financial sector.
In 2021, France recorded the highest number of new financial sector projects by foreign investors in a decade, according to research from EY, a consultancy. For the first time that year, France also overtook the United Kingdom in securing more investments into the sector from the United States.
Some of the world’s biggest banks have relocated traders from London to Paris, and ramped up local hiring, so they can continue to offer services to EU-based clients that can no longer be provided from Britain.
The headcount at Bank of America (BAC)’s Paris office is now about six times higher than before the 2016 Brexit vote, according to Vanessa Holtz, chief executive of the bank’s securities business in Europe and head of the lender’s French arm.
The workforce at Morgan Stanley’s Paris office has more than doubled to 330 since March 2021, and the headcount could rise to as many as 500 within the next two years or so, Emmanuel Goldstein, chief executive of Morgan Stanley France, told CNN.
Brexit is only partly responsible for that increase. The bank opened a research center in the French capital last year, employing analysts to support its traders.
“The pool of talent we have seen in France has been huge,” Goldstein said.
For Neufeld at the CEBR, the moment that made him “stop and take notice” came in November.
That month, France overtook Britain for the first time to become home to Europe’s largest stock market by value. As of Friday, the combined market value of the CAC All-Share Index was €3.19 trillion ($3.51 trillion), while London’s FTSE All-Share Index constituents were collectively worth £2.39 trillion ($2.98 trillion).
“Things are coming together in Paris… there’s definitely some momentum there,” Neufeld said.
Correction: A previous version of this story misstated Morgan Stanley's hiring plans for its Paris office. The bank's total headcount could rise to 500 within the next two years.