LONDON (ShareCast) - (Sharecast News) - Berenberg believes French president Emmanuel Macron should hold his nerve over the yellow vest protests, arguing that his policies should bolster France's long-term economic health and even usher in a "golden decade".
Hundreds of thousands have taken to the streets in France in recent weeks in increasingly violent protests over fuel taxes and the rising cost of living. The yellow vest movement - so called because of the high visibility jackets worn by protestors - is unhappy with various economic reforms Macron is trying to introduce, including raising petrol taxes.

The French president has increased petrol tax this year as he seeks to make the tax system more environmentally-focused, and plans to up the tax again in 2019 have angered many, especially those in rural areas who depend heavily on their cars.

Macron is due to meet protestors this week. But ahead of the meeting, Berenberg analyst Holger Schmieding said he did not expect Macron to back down significantly. "The 30% drop in oil prices from their peak in early October should lead to a significant decline in pump prices shortly. In turn, this could help contain the protests."

He continued: "Macron's labour market, tax and other reforms have already improved the long-term growth potential of the French economy. However, reforms often hurt before the positive results become visible.

"Despite the current spate of protests, Marcon will probably be able to implement some further reforms in the next 12 months. Although he may not be able to deliver on all his reform promises, we maintain our big call that his reforms will reach the critical mass needed to turn France into a significantly more dynamic economy over time.

"France could still be heading for a golden decade."

Macron's approval ratings have tumbled this year, and his party is not expected to perform well at May's European elections. However, the president retains a majority in parliament and is not up for re-election until 2022.

In another note from Berenberg, also published on Monday, analysts looking at the luxury goods sector said that the riots - which started in Paris before spreading to other cities - could impact "tourism and thus luxury goods brands' sales in the important final month of 2018 - December is also referred to as two months, given its relative size".

The luxury goods industry relies heavily on tourism, especially wealthy holidaymakers from China, and Berenberg warned that fewer tourists could now come to France because of the protests, while local demand could be affected by temporary store closures.

It urged investors to watch the situation closely in the coming weeks, with Sandro-owner SMCP and Hermès International having some of the highest sales exposure to France. Around 41% of SMCP's sales come from France and around 14% of Hermès.

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