France’s prospects on the decline

Cédric De Fonclare, the manager of Jupiter European Special Situations fund, is concerned about the prospects for France noting a decline in investment in the country from the companies he meets.

In September, the French budget set out proposals that aim to achieve a 3 per cent of GDP deficit target by 2013 as agreed with the European Union.

“What I am hearing from companies is that they are cautious about which returns they can generate from some industries in France,” De Fonclare says.

He says the challenges that France faces are political intervention and inflexible labour. As such he is underweight in the country in the £598m European Special Situations fund.

De Fonclare says: “I am sharing some of the concerns about the French economy and the message that has been sent by the government. I can see through discussions with companies that the inflexible labour situation is impacting the decision to invest in France.”

In France, the workforce enjoys low working hours with protection from strong and militant trade unions.

Electrolux disclosed in its interim report this month that it will close its plant in Revin, France. “There is a number of Western European companies or international businesses which have decided to close down capacity because one of the reasons has to do with inflexible labour forces in France.”

De Fonclare says that in the automotive industry, you can see companies like Renault rationalising and adapting to the reality of the western world, which is that there is no real growth for car manufacturers. The firm is in talks on labour concessions in France to avoid job cuts .

“There is too much capacity and too many brands. In France, billions of money has been wasted and thrown into the industry trying to artificially keep jobs and delaying the inevitable,” De Fonclare says.

Meanwhile Virginie Maisonneuve, Schroders head of global equities, sees tax increases hurting French companies.

Maisonneuve says the tax increases announced in the budget renege on Francois Hollande’s election proposal to promote growth rather than austerity.

She says: “The plan in particular targets the large business sector – nearly a third of additional fiscal tightening for 2013 is intended to come from the corporate sector. This will not help companies regain confidence and create badly needed jobs.”