Paris stupor: why consumer sentiment in France showed maximum deterioration in 48 years

In April, the consumer confidence index in the French economy dropped from 103 to 95 points. The decrease in the indicator became the largest for all the time of observation - since 1972. This is stated in a study of the national statistical office of the Republic of Insee. 

According to RT analysts interviewed, the French are increasingly concerned about their situation amid the situation with coronavirus. According to Johns Hopkins University, in France the total number of infected with COVID-19 exceeded 169 thousand people, of which more than 23 thousand died. At the same time, the country ranks fourth in the world in terms of the number of infected.

“The pandemic forced the authorities to resort to harsh quarantine measures. Between March 17 and May 11, cafes, shopping centers, and entertainment venues stopped operating in France, and production at several plants was paused. The government is trying to stop the growing crisis, but the process of localization of the disease is still slow. Citizens see restrictions restricting some of the country's key manufacturing sectors and the national economy as a whole, ”said Artyom Deev, head of the AMarkets analytical department, at RT. 

According to a preliminary estimate of the Bank of France, in the first quarter of 2020, the country's GDP fell immediately by 6%. The last time a similar decline was recorded in 1968, when the French economy contracted 5.3%.

“Now the situation is close to the time 50 years ago, when the country's GDP collapsed amid mass protests from the population due to rising unemployment and lower earnings. Today’s epidemic and the subsequent decline in business activity have led to a wider gap between the incomes of various segments of the population and a reduction in the middle class, ”added Deev.  

The unstable economic situation in France provoked a record increase in unemployment. According to the country's Ministry of Labor, in March the number of officially unemployed people increased by more than 7% and exceeded 3.7 million people. The growth rate of the indicator has become maximum since 1996.

At the same time, the opinion of the French regarding their future financial situation noticeably worsened. According to Insee, the corresponding index fell by 15 points.  

A decrease in confidence in the economy of citizens can lead to a significant reduction in consumer demand. About this in an interview with RT said the chief analyst of TeleTrade Peter Pushkaryov.

“In the current conditions, the French are forced to save and refuse many purchases. As a result, the volume of domestic consumer demand falls, which becomes an additional blow to economic indicators. At such rates, it will take at least 9-12 months from the moment quarantine is lifted to restore the indicator, which will lead to a drop in France's GDP by 12% in the first half of the year. At the same time, the economic recovery in France may take more than one year, ”the analyst believes.

Call of Duty

The situation in the economy is further complicated by the high volume of public debt and the budget deficit. As Prime Minister Edouard Philippe previously stated, in 2020, the negative difference between the income and expenses of the French treasury can grow from 3% to 9% of GDP. At the same time, the debt of the French government runs the risk of increasing from 98% to 115% of GDP.

Supporting the economy by increasing public debt will mitigate the effects of coronavirus on countries. Meanwhile, an increase in the debt burden may make it difficult for the country to recover from the crisis after the pandemic. This was in an interview with RT by Vladimir Olenchenko, senior researcher at the Center for European Studies of IMEMO RAS. According to him, a similar state of affairs can be observed today in other countries of the eurozone.

“Firstly, servicing a public debt requires additional budgetary funds. In the future, due to the high debt burden, governments (the eurozone. - RT ) will have to limit spending. Most often this happens due to salaries of civil servants, pensions and other social benefits. After the pandemic is completed, it will be necessary to stimulate the population’s demand for goods and services, but it will be more difficult for governments to achieve this, ”the expert explained.

According to analysts, the current state of affairs risks weakening the position of Emmanuel Macron on the eve of the elections scheduled for 2022. According to RT, Vasily Karpunin, head of the BCS Broker stock market experts department, a long quarantine regime, as well as a shutdown of production, are already damaging the image of the current president and his team. So, in the first round of municipal elections, which took place in March 2020, the Macron party lost to its opponents in many large cities of France. 

“I do not exclude the possibility that after the quarantine is lifted, the president will face a new wave of protests of the 'yellow vests', which will put forward rather stringent demands on the government to solve problems with the growing fall in incomes of ordinary Frenchmen. If Macron does not quickly cope with these challenges, then his election positions may be shaken, ”the expert concluded.