(Bloomberg) -- France’s labor market is turning against Emmanuel Macron, raising concerns in his team that the president’s record as an economic reformer can’t counter the rising popularity of Marine Le Pen.

Rising joblessness over the course of last year already makes it increasingly unlikely that he will reach a goal of “full employment” that he set for his second term ending in 2027. In the fourth quarter, the unemployment rate stood at 7.5%, up from 7.1% a year earlier.  

Moreover, the outlook for the coming months in the euro area’s second-largest economy is clouded as businesses in sectors ranging from finance to real estate and retail prepare layoffs.

Macron is concerned more job cuts at large companies would shift the public perception of his employment record ahead of European Parliament elections in June, according to a person familiar with his thinking. The person, who spoke on condition of anonymity, declined to say which firms might yet announce such plans.

The situation is alarming for a leader who dragged France through years of painful reforms with the promise that loosening labor laws and retiring later would be the solution to the country’s long-term economic inertia. A surge in support for the Le Pen’s National Rally party shows many voters no longer buy his pitch.

For a while, his strategy seemed to be working. After he became president in 2017, unemployment appeared to decline compliantly through a succession of overhauls he first championed as economy minister under predecessor Francois Hollande. In his bid for reelection in 2022, Macron could claim success where others had failed.

The new uncertainty over his record comes at a challenging political juncture. Macron is attempting to reboot his presidency with a new prime minister ahead of the June ballot as his party trails around 10 percentage points behind Le Pen’s National Rally in polls of voting intentions. Her party says this is a springboard for her to succeed him in 2027.

The labor challenge is coming to the fore in France’s financial industry, with lender Societe Generale SA announcing a plan last week to cut 900 jobs at its head office, and digital payments provider Worldine SA saying it will lay off as much as 8% of its global workforce.

The construction sector is among the hardest hit after the European Central Bank’s interest rate hikes fed quickly into the housing market. Vinci SA Chief Executive Officer Xavier Huillard said last month the French builder had begun talks with staff representatives about voluntary redundancies.

France’s federation of real estate developers, FPI, estimates the drop in new building projects means 300,000 fewer jobs over this year and next. Even when rates decline, FPI Delegate General Didier Bellier-Ganière expects the recovery to be weak and gradual as the supply of building projects takes a long time to pick up. 

“A vicious circle has begun, making the crisis cataclysmic and systemic,” Bellier-Ganière said. “Even after the job losses in the next two years, there will be far less job creation than before.” 

What Bloomberg Economics Says...

“Pension reforms will keep boosting labor supply but slower growth and higher wages are likely to weigh on labor demand and there may be structural hurdles to taking the unemployment rate below 7%. Macron is aiming to introduce new labor reforms this spring. That could help with achieving his goal, but with unemployment on the rise, this may also add to political tensions”

-Eleonora Mavroeidi and Maeva Cousin, economists. Click here for full INSIGHT

Car parts maker Valeo SE also plans to cut 1,150 jobs worldwide. And in the retail sector, high street clothing chain IKKS said last week it will cut around 200 jobs and close 77 shops, Agence France-Presse reported.

So far, the president’s response has been to promise an “Act II” of the economic reforms that dominated the early years of his presidency. To that end, the finance and labor ministries are working on bills that would cut back bureaucracy for small companies and make further changes to discourage living off jobless benefits.

Taking aim again at France’s labor code again may stir the ire of unions, however. While they struggled to block changes during Macron’s first five-year term, strikes and protests last year over raising the retirement age brought prolonged and sometimes violent disruption.

Yet he may have little choice if he is to pursue overhauls.

According to Bank of France Governor Francois Villeroy de Galhau, if governments stay the course of more reforms to boost training, apprenticeships and education, it’s still possible to bring the unemployment rate down to 5% by 2030.

“If we mobilize, we have an historic opportunity to go toward full employment this decade,” Villeroy said on LCI television on Friday. “We are showing we can make progress.”

--With assistance from Ainhoa Goyeneche, Alexandre Rajbhandari, Francois de Beaupuy and Albertina Torsoli.

©2024 Bloomberg L.P.