French voters' rejection of the European Union constitution yesterday risks weighing on business sentiment in the euro zone's second biggest economy and will likely put the brakes on economic reforms, analysts said.
High unemployment, discontent with the government's economic policies and fears that the EU's eastward expansion is threatening jobs fuelled opposition to a treaty that aims to simplify decision-making in the bloc.
The outcome has raised uncertainty about the government's next move, not least as President Jacques Chirac is widely expected to dismiss Prime Minister Jean-Pierre Raffarin, and the policies to be pursued before 2007 presidential elections.
This will cast a cloud over business confidence, which is already mired at 1.5 year lows, and could prompt French firms to defer investment and hiring decisions, to the detriment of economic activity, analysts said.
"People will say this is one in the eye for the establishment and the government, but what counts for the economy is the reaction of business," said Mark Cliffe, global head of economic strategy, ING Financial Markets in London.
"A 'No' is hardly calculated to boost business confidence in the coming months so it is hard to see this as being positive for economic activity," he said.
Nicolas Sobczak, senior economist at Goldman Sachs, said the impact of the uncertainty generated by the French referendum should not be overestimated but added its effect would be felt.
"This is just adding to other factors, such as an overvalued euro, but it will not help," he said.