Navigating French Stagnation: Sector Rotation Strategies in a Post-Olympic Economy

The French economy's tepid recovery in Q1 2025—0.1% GDP growth—highlights a persistent struggle to escape stagnation. While the Paris Olympics provided a modest tailwind, the data underscores a bifurcated landscape: resilient consumer services and government-linked sectors contrast sharply with weak business investment and trade. For investors, this divergence creates a clear roadmap—rotate capital toward sectors insulated from the downturn while avoiding cyclical industries.

The Stagnation Paradox: Resilience in Services, Weakness Elsewhere

The Q1 data reveals a critical split in economic performance. Household consumption, the economy's largest component, remained flat at 0.0%, with declines in goods purchases (-0.6%) offset by a rebound in services (+0.5%). . The services revival was driven by transport (+1.0%) and household services (+0.3%), which recovered after a Q4 2024 slump caused by Olympic disruptions. This suggests that sectors tied to daily consumer needs—telecoms, healthcare, and utilities—could sustain growth even as broader demand falters.

Meanwhile, business investment (GFCF) contracted for the second straight quarter (-0.2%), with construction (-0.5%) and capital goods (-1.6%) leading the slump. Exports also faltered (-0.7%), hit by weakness in automotive and chemical sectors, while imports rose, worsening the trade deficit. These trends signal risks for cyclical industries reliant on global demand or capital spending.

Sector Spotlight: Where to Deploy Capital Now

1. Telecoms and Healthcare: The Services Sweet Spot
The services sector's rebound points to opportunities in consumer-facing industries insulated from macroeconomic headwinds. Telecoms firms, such as Orange (ORA.PA) and Bouygues Telecom (BOUY.PA), benefit from recurring revenue models and digital transformation tailwinds. Similarly, healthcare providers and pharmaceutical companies—like Sanofi (SAN.PA) or L'Oréal (OR.PA) (via its wellness-focused products)—are positioned to capitalize on steady demand for essential services.

2. Public Infrastructure: Betting on Government Backstops
With government consumption up 0.1%, sectors tied to public spending—such as construction (for Olympic legacy projects) and utilities—may see selective upside. Firms like Vinci (DGFP.PA), a leader in infrastructure development, or Engie (ENGI.PA), focused on energy transition projects, could benefit from fiscal support. The INSEE's warning about “political and budgetary uncertainties” tempers optimism, but strategic bets on firms with contracted public projects could yield stability.

3. Caution: Avoid Cyclical Exposure
Investors should steer clear of sectors tied to volatile trade and investment cycles. The automotive industry—exemplified by Stellantis (STLA.PA)—faces headwinds from declining vehicle purchases (-4.4% in goods) and regulatory shifts. Similarly, materials and industrial conglomerates like Arkema (ARK.PA) or Safran (SAF.PA) are exposed to weak export demand and delayed capital spending.

Historical Context: A Pattern of Subpar Growth

France's 1.1% annual GDP growth in 2024 and the Q1 2025 stagnation reflect a broader trend of underperformance relative to peers. Persistent public deficits (-45.0 billion euros in Q4 2024) and high unemployment (7.3%) suggest limited room for fiscal stimulus. Yet, the resilience of services and government-linked sectors offers a tactical edge—investors can profit by focusing on companies with pricing power and recurring revenue streams.

Conclusion: Rotate to Stability, Avoid Cyclicals

The French economy's mixed signals demand a disciplined approach. Prioritize sectors where demand remains robust: telecoms, healthcare, and public infrastructure. Avoid industries reliant on trade or capital spending. As the INSEE notes, uncertainties loom, but this volatility creates opportunities for investors who act decisively. The time to pivot is now—before the next headwind hits.

In a stagnating economy, resilience isn't just a strategy—it's survival.