France: No majority, no spending surge, but continued uncertainty – Danske Bank

No party secured an absolute majority in the French National Assembly, leaving it highly fractured after the election, Danske Bank analysts note.

Political uncertainty continues in France

“The left-wing New Popular Front (NPF) became the largest party, securing 182 seats. Macron's centrist ‘Ensemble’ alliance finished second with 168 seats. The far-right National Rally (RN) has unexpectedly taken third place, garnering 143 seats. A party or coalition needs 289 seats for an absolute majority.”

“Uncertainty about what the new government will look like is high, and there is no obvious majority government to be formed. Uncertainty in French politics is set to persist even after a government is formed as there is a higher than usual risk of the government breaking given the fragmentated results of the election.”

“However, some uncertainty has been eliminated from markets by the results, as public spending in France is most likely not set to rise significantly since both the left-wing and far-right fell short of an absolute majority. We thus expect the 10y yield spread between France and Germany will tighten to some 40-60 bp within 3 months.”