Paris (AFP)

The French economy should plunge by around 10% this year, despite a "gradual" recovery in activity from the third quarter, according to an estimate published Tuesday by the Banque de France, which judges that the GDP will not regain its pre-crisis level before mid-2022.

This forecast is close to that of the government, which anticipates an 11% recession this year.

After the "very strong shock" caused by containment, with in particular a fall in gross domestic product (GDP) estimated at 15% in the second quarter, the economy should rebound by 7% in 2021, then increase by 4% in 2022 , predicts the French central bank.

"This strong apparent rebound would not return to the level of activity at the end of 2019 before mid-2022," said the Banque de France, however.

This scenario is based on a persistent but controlled circulation of Covid-19 and an economy that adapts to health constraints.

According to the central bank, its forecasts remain dependent on many uncertainties, and "the trade-off" between savings and consumption will be "essential for the pace of recovery".

It is "likely that the expected rise in unemployment and the global context of high uncertainty will continue to weigh on purchasing behavior," she said.

It thus forecasts that the household savings rate will exceed 22% this year and that consumption will fall by 9.3%.

With weakened margins and slower activity, companies would reduce their investments by 23.3%.

These difficulties will "cause a significant reduction in employment", but in a slightly time-delayed manner as the government reduces the massive partial unemployment scheme put in place in March.

Thus, the unemployment rate would rise to more than 10% at the end of 2020, and would climb to a peak higher than 11.5% in mid-2021, a level "above historical precedents", projects the Bank of France. And we would have to wait until 2022 to see it go back down to 9.7%.

Overall, if overall household income is going to fall due to these economic difficulties, it is the State and public administrations which will shoulder the brunt of the shock of the crisis, underlines the BoF.

In terms of price level, it anticipates downward pressure, with inflation which could even become negative at the end of 2020, mainly due to energy prices, then remain below 1% until at the end of 2022.

© 2020 AFP