The outcome is likely to be a relief to investors concerned about a far-right candidate but the result doesn't mean that Macron will not face a struggle to implement the kind of reforms needed to bolster an economy in which the State takes more than half of GDP.

Voters in France, the world’s seventh-largest economy, re-elected President Emmanuel Macron to a fresh term of office at the weekend, defeating far-right challenger Marine Le Pen. His victory is seen as an endorsement of a centrist candidate who very much cleaves to the importance of the European Union. 

With 97 per cent of votes counted, Macron was on course to win almost 58 per cent of the vote (Reuters, April 25, others), a sufficiently large margin to end doubts about the result. The term of office is five years.

“The result was widely expected, but the residual uncertainty is now removed, which should, at the margin be supportive for French and European assets, as well as the single currency,” Dean Turner, chief eurozone and UK economist at UBS Global Wealth Management’s Chief Investment Office, said in a note today.

“Reform of the eurozone’s fiscal rules, with the Stability and Growth Pact set to return later this year (although there is a high chance this will be delayed again), will be a key challenge. With Macron’s support, reform is likely to favor a more gradual path of fiscal consolidation which, other things equal, would be supportive for growth and investment, especially in areas such as decarbonization and digital technologies,” Turner said. (He referred to the eurozone’s rules about debt, the size of deficits as a share of GDP, which have at times been criticized for being unduly restrictive on what countries can do to boost economic growth since the euro was formed more than 20 years ago.)

Reports noted that Le Pen’s far right party secured almost a third of the voters in the first round of the election process, which is unprecedented in the history of the Fifth Republic.

A number of commentaries on the result stated that voters chose Macron more as a least-worst choice rather than because they were enthusiastic about him. Big rises in the cost of living – as endured around the world – frustration with issues such as the handling of the pandemic, as well as concerns about integration of immigrants, have played into the hands of challenger parties. 

“The financial markets will breathe a collective sigh of relief following Macron's election victory. On one hand, as the gap between the two candidates in the opinion polls widened in the last week, a Macron victory looked fairly well priced in. On the other, the accuracy – or lack thereof – of political polling in recent years meant that investors were always going to be a bit jittery,” Seema Shah, chief strategist at Principal Global Investors, said. “Although, compared with the alternative, this result is good news for the euro, French bond spreads and the share prices of French banks; it is hard to see much upside for these assets in the near term given the broader macro outlook in the wake of the war in Ukraine. We think the probability of Europe ending this year in recession is high – and Macron's victory doesn't change this.”

“Macron becomes the first French President to win re-election in two decades. It was a narrower margin of victory than the 32 points of 2017, with surging costs of living leading voter concerns, but a significant relief after the poll tightening of recent months,” Ben Laidler, global markets strategist at social investment network eToro, said. 

“Attention will quickly shift to the ‘third round’ represented by the June legislative elections that will determine the ability of Macron to successfully implement policy over his new five-year term,” Laidler said.

France has one of the largest state shares of GDP in the developed world, with the state taking more than 62 per cent of GDP in 2020 (Trading Economics) – a situation accentuated by the pandemic. Macron faces a battle to try and prevent such spending from stifling economic growth.