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How is France doing?

By Richard McCreery
This article is published on: 17th May 2023

If you live in France, the general impression you might have is of a country that is dragged down by strikes and protests, that the cost of living is soaring and the dream of retiring whilst still young is under threat. But it is not all bad news. If you have investments in France, or are planning to retire here, there are several reasons to be cheerful about the state of the country.

Despite fears of a possible recession, France’s GDP grew 0.2% in the latest quarter and was 0.8% higher than a year earlier – not exactly blowing the lights out but coping reasonably well with Eurozone interest rates that have risen to 3.75%. In fact, you can still get a 20-year mortgage in France and pay less than 3%, so the housing market is not coming under the same pressure as it is in some countries like the US, where a typical mortgage now costs 6.5%, or Sweden, where house prices have fallen sharply.

At 7.2%, France’s unemployment rate is around the lowest level it has been for several decades. The more people in work, the better. Inflation may be historically high at 5.9% but this is lower than the Eurozone average of 7% and considerably less painful than the UK’s 10.1% rate. We were very lucky that the government capped energy price rises at 4% last year and 15% this year.

Where France has more of a problem is its debt levels, partly because of that low retirement age but also because of the government’s generosity during the pandemic, although France is hardly alone in this. France’s government debt-to-GDP ratio has swelled from 97% in 2019 to 111% today. It is because France’s national debt has grown to almost 3 trillion Euros, and because it is so hard for the government to do anything about it without triggering widespread rioting, that the rating agency Fitch recently downgraded the country’s credit rating to AA- (outlook: Stable). This still leaves it slightly better off than the UK, whose outlook is Negative.

Living in France

But President Macron is making efforts to build on France’s substantial industrial base, asking Elon Musk and other business leaders to invest in the country. In fact, according to accounting firm EY, France is the most attractive country in Europe for foreign investment and has been for four years in a row. It is also the home of LVMH, which recently became the 7th largest company in the world, worth more than half a trillion Dollars, as well as Kering (the owner of Gucci) and Hermès. French luxury goods companies are the European stock market equivalent of Big Tech stocks in the US, they seem to go from strength-to-strength and have powered the CAC 40 to a record high this year. French banks also seem to have come through the recent turmoil in the sector relatively unscathed.

France has a great standard of living, it is the world’s number one tourist destination and the economy is on a fairly sound footing. Taxes are high, but residents also have access to very tax efficient investment vehicles that can reduce exposure to income tax and inheritance tax, with the right planning and advice. There is a lot to be said for investing in the EU’s second largest economy. Despite the burning barricades on the nightly news, France is doing fine right now.

Please contact me to discuss the valuable investment and tax planning opportunities currently available to French residents.

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Article by Richard McCreery

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