- France’s higher corporate taxes: The bark is worse than the bite. The French government’s new budget plan introduces a tiered corporate tax structure that raises the statutory corporate tax rate for businesses with turnovers exceeding EUR1bn. We expect earnings for large-cap companies (40% of CAC 40 companies are concerned) to reduce by only -2% in 2025 and -1.2% in 2026 as a result of the new tax regime (many of these companies are less exposed to France). Small- and mid-sized companies which generate more of their revenues locally are likely to face a larger hit: -3.5% in 2025 and -2.5% in 2026 for CAC Mid companies (5% of companies in scope) and -3.8% in 2025 and -4.4% in 2026 for CAC Small companies (5% of companies in scope). Overall, forecasts for earnings growth for CAC 40 companies remains robust, with EPS estimates likely to timidly adjust downward to 7% for 2025 and 8% for 2026, in line with our French equity market forecasts (6%).
- Paris motor show: Schadenfreude for German car makers. Global car sales are stalling, especially in Europe and Germany’s automotive sector is struggling the most. Major automakers have already reported sales declines between -3% to -13% for Q3 2024, highlighting the need to revisit the export-driven business model oriented towards traditional internal combustion engines. While electric vehicle sales (EV) were the silver lining everywhere else (+22% from January to September 2024 vs. Jan-Sept 2023), they fell by 32% in Germany over the same period. With the EU CO2 penalty looming, German automakers could face as much as EUR16bn in fines if they do not step up the pace of their EV transition.
- China: Big move policies have yet to deliver. The Chinese economy is still in dire need of policy support. Q3 GDP data released today shows a slowdown to +4.6% y/y, from +4.7% in Q2, a far cry from the official growth target of “around +5%” for 2024, while consumer and activity data also confirm the gloomy outlook. The PBOC's super package boosted Chinese equity markets but improved economic fundamentals are yet to be seen. For this, fiscal policy needs to do the heavy lifting to break the negative confidence feedback loops, help stabilize real estate prices, sustainably restore confidence and anchor long-term growth expectations. The yet-to-be-announced full scale of the fiscal stimulus, hopefully focusing further on consumers and the property market, would ensure China achieves the official growth target for 2024, and potentially boost 2025 growth by up to +0.4pp, though the long-term trend of economic slowdown cannot be avoided. .
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