Paris (AFP)
The French seem reluctant to take out their wallets, even though they saved a lot during the confinement. Behavior closely scrutinized, as a return to consumption can contribute to the economic recovery.
The revival of consumption, key to the economic recovery?
The return of consumption "will be the detonator to have an acceleration of the economic recovery, because this crisis of the coronavirus it is above all a shock on demand", explains to AFP Christopher Dembik, responsible for economic research at Saxo Bank.
In France, as elsewhere, household spending dried up during confinement, forcing manufacturers and distributors to store clothes, furniture or vehicles ... and to draw on their cash to pay their fixed costs.
A return in demand would be synonymous with resumption of activity for companies, which would then allow them to hire and invest.
"If consumption does not restart, nothing else will be able to start again," stresses Alexandre Delaigue, professor of economics at the University of Lille, to AFP.
What about the state?
The state would also benefit from the return of consumption since it generates significant tax revenue. In France, VAT weighs almost 45% of this revenue.
In addition, consumption "is the main driver in terms of contributing to growth, well before investment," says Dembik.
The government is counting on wealth creation to repay through existing levies (VAT, social security contributions, taxes etc.) the debt generated by the health crisis. However, he expects a plunge of 11% of GDP and a public deficit of 11.4% of GDP for the year 2020.
"As long as economic activity does not start again, we are left with more public spending - linked to the stimulus plans, short-time working - than revenue," specifies Mr. Delaigue. This deterioration in public accounts risks limiting the State's support capacity afterwards, he warns.
How to accelerate the movement?
It is "likely that the expected rise in unemployment and the global context of high uncertainty will continue to weigh on purchasing behavior", warned Tuesday the Bank of France, which considers the pace of the rebound in consumption as the element " essential "of recovery.
To avoid precautionary savings, it is necessary "to ensure that everyone's expectations are as positive as possible", which can imply mobilizing stimulus plans to restore confidence, recently explained the director of the OFCE, Xavier Timbeau.
Some countries like the United States distribute sums of money to individuals. France has provided financial assistance for low-income households and precarious young people.
Other nations, such as Japan, opt for vouchers. This idea is "very relevant", but "these vouchers must be made conditional on certain types of purchases to avoid favoring imported products," says Dembik.
Medef and the Confederation of Small and Medium Enterprises also offer tax measures to encourage intergenerational donations and allow employees to unlock their participation.
Another strategy is to temporarily reduce VAT, a measure adopted by Germany but rejected by France mainly because of its high cost.
Is stimulating consumption compatible with ecology?
To combine economic recovery and ecological transition, the State can target part of consumption towards green goods and services, with certain aids.
The Medef thus proposes to distribute to modest households "eco-checks" financed by the State, a "transverse" device making it possible to pay for purchases (organic food, energy-efficient household equipment) and ecological services. More targeted measure: the CPME suggests reducing the VAT on repair activities, for example cycling.
For the time being, the government has taken this type of measure for the automotive sector, including the increase in the bonus for the purchase of a new electric vehicle.
"It is possible to have an ecological component, but it will not be the heart of the recovery," said Mr. Dembik. "Unfortunately, it is very rare to be able to change software during a crisis because of the cost of such a decision."
© 2020 AFP