The French Economy: Fast initial recovery will slow down

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) dropped by 13.8 percent in the second quarter of 2020 after a decline of 5.9 percent in the first quarter. Private consumption fell by 11.8 percent (after 5.8 percent in the first quarter) and investment contracted at a very high rate of 14.9 percent (after 10.0 percent from January to March). After the partial relaxation of the lockdown measures in May, the recovery started and gained further momentum over the summer although the pandemic and measures to contain it are still a drag on economic activity. Since forecasts or scenarios are associated with very high levels of uncertainty at the moment, I do not publish a detailed economic forecast.

I was always relatively optimistic as regards the short-term recovery in the summer, but I am relatively pessimistic as to economic developments in the coming months and years (I also hold this view for several other countries). The economic recovery that has started in May will continue in the rest of the year, albeit at a much slower pace. Business sentiment and consumer confidence improved over the summer. Extensive fiscal policy measures and expansionary monetary policy by the European Central Bank further support the recovery. However, higher unemployment, more Covid-19 cases, 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 9 to 10 percent. This will be followed by a relatively strong rebound of around 6 percent in 2021. In a more dramatic scenario (for instance, if there is a severe second wave of the pandemic), the contraction in 2020 would perhaps be at around 12 percent.

As I mentioned above, such forecasts are obviously associated with a high degree of uncertainty. Especially, there is the risk of a large second wave of the pandemic, although I assume that containment measures will 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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