French growth hopes brighter under Sarkozy: analysts

By Swaha Pattanaik

PARIS (Reuters) - France is more likely to launch labor market reforms aimed at stimulating economic growth if right-wing presidential candidate Nicolas Sarkozy beats Socialist Segolene Royal in a second round runoff, analysts said.

Sarkozy and Royal topped the first round of the election on Sunday, and while there is no difference between the two when it comes to criticizing the strong euro, they are offering voters a traditional right-left choice in the next round on May 6.

Analysts said the outcome would determine whether the euro zone's second biggest economy gets a lift from proposals aired by Sarkozy, who leads Royal in opinion polls.

Sarkozy wants to allow people to work more than the 35-hour week, and cut tax and social charges. He also wants to exempt overtime pay from tax and social charges, and push for a single labor contract. By contrast, Royal's program was seen as less supportive for growth.

"Sarkozy's proposals for the labor market are very positive and would be good for jobs, business and growth," said Mathieu Verougstraete, economist at ING in Brussels.

"What I don't like about Royal's ideas is that she is focused on the demand side even though consumption just isn't a problem for France. The real problem in France is exports, so what is needed is a focus on improving firms' competitiveness."

CHASING VOTERS

Some analysts said there was a chance that Royal could temper her left-wing program before the runoff since she would need the support of voters who had backed the centrist UDF candidate, Francois Bayrou, in the first round.

"Royal will have to moderate her rhetoric and she will not be pushing the most left-wing elements of her platform," said Dominique Barbet, senior economist at BNP Paribas in Paris.

Barbet said Royal was unlikely to implement all the elements of her program if she were elected, but added that financial markets could not say with any certainty what would be dropped.

Given that question mark, analysts tended to pick Sarkozy as the best hope for higher French growth.

"His platform is a coherent pro-market reformist program, which should enhance potential growth, while Royal's propositions, in particular a large rise in the minimum wage, would hamper France's competitiveness," said Eric Chaney, economist at Morgan Stanley.

Royal has said she wants to raise the minimum wage to 1,500 euros a month over five years. She has also said she wants to abolish the government's CNE labor contract which made it easier for very small firms to hire and fire workers.

EYE ON THE LONG TERM

Guillaume Menuet at Merrill Lynch in London said some equity sectors could benefit in the short-term from a Royal win but added that the effect could be overshadowed by bigger concerns.