The French economy should fall less heavily this year and rebound faster - France 24

Paris (AFP)

The French economy should sag a little less hard than expected this year under the weight of the health crisis, according to the Bank of France, before rebounding strongly next year but it will take time for it to recover. its pre-crisis level.

The gross domestic product (GDP) should ultimately contract by 8.7% in 2020, the institution estimated on Monday, which is less sharply than the 10.3% drop it anticipated in June.

"The shock of the second quarter was less significant than expected" and "the rebound in activity observed in recent months is more pronounced than what we expected", explained Olivier Garnier, general manager in charge of studies and international relations at the French central bank, during a press conference.

This BdF forecast is close to that of Insee, which expects a 9% recession this year, but more optimistic than that of the government, which anticipates a decline in GDP of 11%, even if it has planned to revise soon this figure.

"The French economy is gradually recovering (...) we are in the right direction," said Economy Minister Bruno Le Maire on Monday morning, shortly before the publication of the BdF.

The European Commission anticipates a decline of 10.6% and the OECD, which has so far forecast a drop of 11.4%, is due to unveil its new forecast on Wednesday.

For next year, the Banque de France also expects a slightly stronger rebound, with growth of 7.4%, then another 3% in 2022. However, these forecasts do not yet take into account the entire stimulus plan announced in early September, with the central bank awaiting details of all measures.

French GDP would thus return to its pre-crisis level from the start of 2022, i.e. a little before what it had anticipated so far, that is to say mid-2022.

It will also be a little earlier than what awaits the GDP of the euro zone, underlines the French central bank.

At the height of the confinement, the French economy was only turning two-thirds and, in August and September, the loss of activity should be reduced to -5% compared to its pre-crisis level, then between -3, 5 and -4% at the end of the year, according to the Banque de France.

"We are entering a phase where activity will continue to progress but no longer at the same rate as that which we have seen in recent months," noted Olivier Garnier.

Thus, the building industry has almost returned to normal activity and although the situations are very heterogeneous in industry and services, even the automobile industry, accommodation and catering and aeronautics saw their activity increase strongly this summer.

The institution therefore forecasts a 16% increase in GDP in the third quarter, after falling 13.8% in the second.

- health uncertainty -

Half of the business leaders questioned by the Banque de France in its monthly economic survey thus envisage a return to normal as of this year, and a quarter by 2022. On the other hand, a sign of the uncertainty which persists, almost a quarter of managers cannot say when they will return to normal activity.

The Banque de France also specifies that its forecasts remain subject to significant uncertainties due to uncertainties over the evolution of the epidemic but also to the outcome of the difficult Brexit negotiations.

Another unknown, the rate at which households will spend the precautionary savings garnered in recent months, the partial unemployment scheme having preserved most of their income.

According to the BdF, the rebound in private consumption, observed since the summer, should continue to return at the end of 2020 to a level close to that of the end of 2019. The savings accumulated at the end of the year should thus ultimately be less than 100 billion euros planned by the central bank.

"The essential element will be the confidence of households", in connection with the evolution of the health situation, taxation and their concerns about employment, said Mr. Garnier.

On this last point, the Banque de France has also revised downward the impact of the crisis.

If unemployment will rise well this year, with "about 800,000" job cuts, and an unemployment rate that could reach 11.1% in 2021, "more than 700,000 jobs" would be recreated in 2021 and 2022.

© 2020 AFP