We can breathe again after French election outcome

What a relief. Over last weekend there was serious trepidation across European markets that the French presidential election would end in a Marine Le Pen/Jean-Luc Melenchon run-off, the two ends of the political extremes, leading to what one commentator called “the end of the comparatively benign market conditions” that have ruled for the past few years.

When it didn’t happen, French share prices surged to a nine-year high, the euro rose by 2 per cent, French government bonds, shunned on fears that one or other of the anti-EU candidates would triumph, staged a sharp recovery and Monday turned into a great day for world markets. There is still another round in the election to go, but the markets are assuming Emmanuel Macron is heading for the Elysée Palace. The nightmare of either a far-right or a far-left Eurosceptic running the euro zone’s second-largest economy has been removed. Or at least that’s what the polls, which were right for a change, are telling us.

So far so good. But brace yourself – more good news may be on the way. Over the weekend, Donald Trump tweeted: “Big TAX REFORM AND TAX REDUCTION will be announced Wednesday.” This is Mr Trump’s big, big policy initiative, the one that is designed to kick up US economic growth from the expected 2.5 per cent this year – the highest in the G20 and a respectable enough figure for an economy as mature as the US – to 3 to 4 per cent. It is also, according to Trumponomics, supposed to pay for itself, which is an assumption that defies all known economic science or common sense. “Fantasy math”, as someone called it over the weekend. But let’s wait and see.

For the moment the important thing is that – assuming that Marine le Pen does the decent thing and loses – the French economy has pulled back from disaster, the euro has survived, the euro zone returns to growth and the US recovery goes on. Or, as Christine Lagarde, the IMF’s managing director, said in Washington the other day: “Spring is in the air and spring is in the economy as well.” There is certainly a spring in the step of the perpetually gloomy IMF economists right now. They have raised their forecasts for global economic growth for the first time in six years, largely based on official figures showing that the Chinese economy grew at an annual rate of 6.9 per cent in the first quarter. Japan is also improving, and European officials are insisting that the region, which has become a byword for high unemployment and persistent disappointment, is on the mend. According to Pierre Moscovici, the EU’s economics commissioner, Europe’s recovery is “firming and broadening across sectors”.

All of this has caused the IMF to predict 3.5 per cent global economic growth this year, the best performance since before the 2008 banking crisis.

The odd one out is Britain, until recently the top performer in the G20 growth league but now running well behind the pack. The economic downturn the anti-Brexit camp has been waiting for may finally be arriving. The latest retail sales are the worst in three years, suggesting that the combination of higher prices resulting from the fall in the pound and stagnant wage growth have finally hit the consumer’s pocket. Political sceptics suggest that Theresa May has called an early election basically because she fears she might find herself going to the electorate in three years’ time at the bottom of the cycle. I don’t believe she is as clever as that. But she could still have got it right.

Recent statistics on UK wages have been sobering. According to official statisticians, regular pay, allowing for inflation, has grown by a meagre 0.1 per cent over the past 12 months, and worse is to come. With inflation headed for 3 per cent – it is currently at 2.3 per cent – real wages will actually fall over the next year. The Institute for Fiscal Studies is now warning that average wages will be no higher in 2022 than they were in 2007, which would make 15 years without a pay rise. That has never happened in Britain since records began.

Unfortunately, it is all too easy to paint a completely different picture of the global economy than the cheery one Madame Lagarde propounds. Pundits have been tediously doing so all week. There are so many things that could go wrong. Donald Trump’s first 100 days ends this weekend, by which time he has to cut a deal with Congress to fund the federal government or he might find himself the only state employee turning up for work on Monday. We will have to wait until May 7 to make sure Madame Le Pen does not make it to the Elysee Palace.

But for a few short days at least we should look on the bright side. After all, spring is in the air.

Ivan Fallon is a former business editor of The Sunday Times and the author of Black Horse Ride: The Inside Story of Lloyds and the Financial Crisis.

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