Investment Institute
Viewpoint Chief Economist

The narrow path

  • 11 April 2022 (7 min read)

Key Points

  • Despite one of the best economic performances through the pandemic and swift action against the fallout from the Ukraine war, many French voters still opted for radical solutions. Left-wing voters are key to round 2.
  • The ECB hawks are not “reading the room” in their criticism of the fiscal support of income.
  • Judging by the current dataflow, the US seems capable to take a “fast and hard” monetary tightening but we think we can see the first cracks.

The polls conducted on the day of the first round suggest the French presidential elections remain tight into the second round on 24 April. None of the two candidates can win without some support from voters who chose left-wing candidates last Sunday.  Marine Le Pen has focused so far on purchasing power issues, and she will probably try to maintain that line. Emmanuel Macron will probably have to invest more in these issues in the coming two weeks, if only to offset his pledge to push retirement age to 65 – a red flag for left-wing voters – with a robust defense of the French welfare state. This will contrast with 2017, when Emmanuel Macron emerged as a “supply-side reformer”.

France has had one of the best GDP performances across member states through the pandemic. The unemployment rate there is lower than before Covid struck. Household income has been powerfully supported by fiscal policy and business failures kept to a minimum. Retail energy prices have risen in France by less than any other large Euro area country thanks to swift government action. Yet, a large proportion of French voters opted for radical solutions. This illustrates the depth of the demand for economic protection from governments, and we suspect this goes beyond France. It’s the ECB which has made this protection possible for the last two years. The central bank is however clearly less and less keen to play that role, while social pressure on public finances continues to be intense. We explore here the last speech by Isabel Schnabel, who developed a “purist” hawkish approach to the European policy-mix.

Meanwhile, in the US, the accumulation of hawkish signals from the Fed is relentless. The Fed’s willingness to normalize “fast and hard” continues to be fueled by a strong dataflow, in particular on the labor market. Powell’s narrative – the US economy is currently growing so much faster than potential that it can easily take a significant monetary tightening – is being strengthened. Still, we think we can see the first signs of what could end up being a quite abrupt slowdown towards the end of this year. The gap between sunny business confidence and consumers’ gloom cannot continue for much longer, and the Fed’s communication and action has started to affect the housing market.

Download the insight
Download report (649.36 KB)

Related Articles

Viewpoint Chief Economist

Draghi Captures the Zeitgeist

Viewpoint Chief Economist

Zoom on the Boom

Viewpoint Chief Economist

Postcard from Davos


    This website is published by AXA Investment Managers Asia (Singapore) Ltd. (Registration No. 199001714W) for general circulation and informational purposes only. It does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities. It has been prepared without taking into account the specific personal circumstances, investment objectives, financial situation or particular needs of any particular person and may be subject to change without notice. Please consult your financial or other professional advisers before making any investment decision.

    Due to its simplification, this publication is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this publication is provided based on our state of knowledge at the time of creation of this publication. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    All investment involves risk, including the loss of capital. The value of investments and the income from them can fluctuate and investors may not get back the amount originally invested. Past performance is not necessarily indicative of future performance.

    Some of the Services and/or products may not be available for offer to retail investors.

    This publication has not been reviewed by the Monetary Authority of Singapore.