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The results were unexpected, with polls predicting National Rally would emerge as the dominant force after a commanding performance in the first round of voting last week.
How this election translates into day-to-day governance remains to be seen. No group secured the outright majority that would allow it to operate with a free hand, and a parliament split between parties of the right and left, with a President of the political centre, could be a recipe for government paralysis.
A stasis in decision making could also have unhelpful repercussions for France’s fragile economy, which has only tentatively emerged from the fog of Covid and inflation. The Atradius Economic Unitpredicts that French economic growth will remain subdued, at 0.9%, through 2024.
But this gloomy picture is illuminated by one bright glowing light. Before politics took centre stage, the Paris Olympics - which starts on 26 July - dominated conversations around the country. The Games remain a source of hope. As France embarks on a new political trajectory, can a month of elite competition in the capital provide a much-needed boost to national unity and economic well-being?
President Macron called the snap election in the hope of achieving clarity. Instead, he may have ushered in a period of political turmoil. The hope now is that a successful Olympic Games repair some of the damage, and gives France new cause for optimism.
To some extent, the Games have already provided significant gains. Paris was awarded the Olympics in 2017 and has spent seven years facilitating the investment in facilities and infrastructure that hosting the world’s greatest sporting event requires.
Nearly all of this money (96%) has been sourced from the private sector, and the economic benefits will be significant. According to a report from the University of Limoges, the Games are set to generate between EUR 6.7 and EUR 11.1 billion in net economic benefits for the Paris region. It’s estimated that 181,000 jobs will be created as a direct result of hosting the Games.
In terms of sectors, the most obvious winner is travel and tourism, as visitors flock to Paris for the Games’ duration and the city rides a longer wave of positive international coverage. “Thanks to tourists, we expect a higher consumption in several sectors leading to a growth in revenues,” says Audrey Palmade, Manager Risk Services at Atradius France. “It should have a favourable impact for several sectors, mainly in the Paris region, including media and communications, hotels and catering, real estate and transport.”
But the benefits go far beyond the impact of increased visitor numbers.
The Paris region’s public transport will be well used during the Games and transport infrastructure has directly benefited from related investment, including extensions to the Paris Metro.
The Olympics provided a much needed boost for the French construction sector, with the Center for Law and Economics of Sport (CDES) estimating that the impact would amount to between EUR 2.1 billion and EUR 3 billion.
But, with facilities and infrastructure now complete, the Games’ positive effects - beyond hospitality and tourism - are fading. Instead, the country’s sluggish residential sector is proving a drag on growth, with French construction set to decline by 0.4% in 2024.
“Several major concrete and construction sites in the Paris area will close during the Games, adds Malo Negroni, Industry LeaderRisk Services at Atradius France. Construction companies whose projects have been postponed, delayed, cancelled, or not scheduled will be able to utilize the partial activity system to minimize the impacts of reduced activity.
There are some Games-related caveats here. For example, there is a possibility that non-Olympic tourists will postpone trips to Paris to avoid excessive crowds, and some major construction projects will be disrupted in Paris for the duration of the Games. But in general, the Games are a cause for celebration, offering an important boost to the French economy. The question is, will France’s divisive elections magnify or negate their positive impact?
Anne Hidalgo, Paris’ mayor, has been at pains to point out that politics will not dampen the Olympic mood. “The party will not be spoiled,” she insists. “I say to visitors from the world over – come over!”
In economic terms at least, she is almost certainly right and the party is unlikely to be spoiled. As the opening ceremony approaches, most of the money has been spent and the construction or refurbishment of infrastructure and facilities is complete. Tickets for many of the most popular events are already sold out. Paris 2024 is likely to provide the predicted economic benefits, despite the unhelpful political backdrop.
But what of the wider economy? Predictably, most of the economic benefits of the Games will be felt in the Paris region. France as a whole faces a range of challenges, from tepid growth and cautious consumer spending to a runaway national debt that currently hovers at around 110% of GDP. Inflation is easing but is likely to remain above target levels until early next year, according to analysis by Oxford Economics.
The hung parliament could now add a period of political gridlock to the mix, leading to damaging paralysis or, at best, an awkward coexistence of political adversaries. Important economic initiatives could get lost or postponed in the confusion.
For example, President Macron’s efforts to reduce debt and pursue a pro-business reform agenda could be early victims of the political stalemate. The outgoing government announced a spending cut of 0.3% of GDP in February, but deficit reduction timelines may slip if important decisions are left unmade.
On the other hand, markets may be relieved that a hung parliament is likely to make some of the more costly proposals of both the right and left difficult to deliver in the short term.
But underlying everything is the fact that markets hate uncertainty, and uncertainty is what President Macron’s gamble has delivered. The collapse of a gridlocked legislature may herald further elections as early as next year, and with presidential elections in 2027, France faces a prolonged period of political turmoil. Politicians may shy away from taking major fiscal decisions when new elections are just around the corner.
This indecisiveness could be especially damaging at a time of economic stagnation, when positive action is required. Against this backdrop, the Olympic Games is providing a much needed injection of investment, entertainment and celebration, but even the world's greatest sporting spectacle cannot disguise France’s need for more fundamental solutions to its economic malaise. In a divided political landscape, those solutions may have to wait.