Analysis-France's plan to cull public holidays may not help the economy

The French government's proposal to eliminate two public holidays to boost economic output and address a budget deficit faces skepticism, as economic studies and recent international experiences suggest such measures yield negligible GDP gains. For instance, France's statistical agency INSEE estimates a mere 0.06% boost to GDP from the proposed changes, while similar efforts in Denmark and Portugal have shown minimal impact or were reversed. This indicates the policy's underlying assumption that 'fewer holidays equals more growth' is largely unsupported, potentially limiting its effectiveness in addressing the fiscal gap.

Analysis

The French government's proposal to eliminate two public holidays to address a budget deficit appears to be based on a flawed economic premise. According to France's own statistical agency, INSEE, the measure is projected to boost GDP by a negligible 0.06%. This aligns with recent empirical evidence from Denmark, where the abolition of a public holiday in 2023 yielded a similarly minimal impact on economic output of 0.01% to 0.06%, as estimated by the IMF. Further analysis from multiple European economies challenges the 'fewer holidays equals more growth' equation; studies in Italy and Germany found that economic output did not negatively correlate with the number of holidays, with some German states even experiencing stronger growth after adding a day off. The policy overlooks the positive economic contributions of holidays to sectors like tourism and leisure, and academic research suggests an optimal number of holidays exists, after which growth diminishes. The reversal of a similar policy in Portugal after just four years further underscores the limited economic benefits and potential political unpopularity of such measures.

Key Decisions for Investors

• Investors should treat the proposed holiday reduction as a non-event for French macroeconomic forecasts, as official estimates and international precedents suggest the GDP impact will be marginal at best.
• Consider the proposal as a signal of the French government's fiscal strain and its willingness to pursue unpopular reforms, which could be a source of political risk rather than an economic catalyst.
• While the aggregate effect is minimal, investors with exposure to the French leisure and hospitality sectors should monitor the policy's progress, as the loss of holidays could represent a minor headwind for domestic tourism.