French economy could shrink 20 percent in second quarter, statistics agency says
France’s economy is making a clear recovery two weeks after the end of a two-month coronavirus lockdown but current government predictions for its outcome are unrealistic, national statistics agency Insee said Wednesday.
Two weeks since the end of a nationwide confinement that lasted from 17 March to 10 May, the French economy is operating “at roughly four-fifths of its pre-crisis level”, compared to two-thirds during the lockdown, Insee said in its latest economic outlook on Wednesday.
Closing non-essential businesses and ordering people to remain home to slow the spread of Covid-19 caused France’s gross domestic product (GDP) to retract 5.8 percent in the first quarter, which ended in March.
The full impact of confinement on the economy will only be known after the second quarter ends in June.
Insee predicted GDP would fall around 20 percent, which would mark what the agency called “the severest recession since the creation of the national accounts in 1948”.
Government’s prediction unrealistic
The agency also expressed caution about the pace of economic recovery over the coming weeks, though it expected a trend of improvement.
“Economic activity in June could be on the order of 14 percent below normal (after -25 percent on average in May and -35 percent on average in April)” Insee said in an economic activity report.
But the agency said current government forecasts of an overall retraction of 8 percent in 2020 was unlikely to be the case.
“If economic activity returns to its pre-crisis level in July, France’s GDP will diminish by 8 percent in 2020, however such a swift return to normal does not seem realistic,” Insee said.
“The global impact of the heal grisis in 2020 will be certainly greater than this figure, because economic recovery, in France and around the world, will be gradual at best in the second half of the year.”
Consumer spending down
Businesses now have to deal with a slower global economy. Although consumer spending rebounded after lockdown, consumer confidence was down from April, when lockdown measures were in full effect.
Insee’s consumer confidence index fell 2 points to stand at 93 points in May, after dropping 8 points in April. The index is calculated so that 100 is the long-term average.
“Households are displaying a marked pessimism concerning France’s economic situation,” the agency noted.
Business confindence rose slightly to 59 points after hitting 53 points in April, its lowest level since Insee began calculating the index in 1980.
Government announces bailouts and guarantees
France has joined many European countries in increasing its deficit beyond EU targets in order to provide 110 billion euros in relief funds for sectors hit hardest by the epidemic.
Part of that went to subsidising 70 percent of wages for more than 12 million temporarily laid-off workers in a plan the government was planning to scale back now that confinement measures are being lifted, although the deficit is still likely to increase in a new budget revision expected in June.
The government has also made 300 billion euros in state guarantees on loans for struggling companies, as well as bailouts worth 18 billion euros for the tourism industry, 8 billion for the auto sector and a yet-to-be-determined amount for airlines.
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