The French Economy: The recovery started but will take time

As in many other countries, the Covid-19 pandemic and the strict national containment measures have led to a severe drop in economic output in France. The French lockdown of the economy has been especially strict. As elsewhere, travel, tourism, hospitality, entertainment and many other sectors of the economy were hard hit. Gross domestic product (GDP) already dropped by 5.3 percent  in the first quarter of 2020. Private consumption fell by 5.5 percent and investment contracted at a very high rate of 10.5 percent. In the second quarter, there will be a higher contraction of perhaps around 15 percent due to a sharp drop in April. After the partial relaxation of the lockdown measures on May 11, the recovery started and gained further momentum in June. Since forecasts or scenarios are associated with very high levels of uncertainty at the moment, I do not publish a detailed economic forecast. I am relatively optimistic as regards the partial short-term recovery in the summer and autumn, but relatively pessimistic as to economic developments in the coming years (I also hold this view for several other countries). The economic recovery that has started May will continue during this summer. Business sentiment and consumer confidence improved in May and further increased in June. Extensive fiscal policy measures and expansionary monetary policy by the European Central Bank further support the recovery. However, higher unemployment, uncertainty, liquidity problems and value chain disruptions will continue to be a drag on consumption and investment. For the whole year of 2020, I expect a severe recession of perhaps 10 to 12 percent. This will be followed by a relatively strong rebound of around 8 percent in 2021. In a more dramatic scenario (for instance, if there is a second wave of the pandemic), the contraction in 2020 would perhaps be at around 14 percent. As I mentioned above, such forecasts are obviously associated with a high degree of uncertainty. Especially, there is the risk of a second wave of the pandemic, although I assume that containment measures would be more targeted than this spring and cause less economic damage. At the global scale, worldwide tensions could increase – especially between the United States and China. And at the European level, it is still not clear how exactly Brexit will occur and whether it will cause damage to the French economy – at least in the short term.

While I use several models in my forecasts, my published numbers are also strongly influenced by my personal experience and judgment.

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