The French economy starts again, but the recession will be worse than expected

L'économie française repart mais la récession sera pire que prévu

PARIS | The French economy has caught its breath in the favour of the déconfinement, but it will not before long its level before the crisis and the recession is expected to greatly exceed the -8 % envisaged by the government.

In the second quarter alone, the fall in GDP could reach “about 20 %”, after -5,8 % in the first, said on Wednesday the national statistics Institute (Insee), adding that on the set of 2020, a recession of 8 %, as envisaged by the government, is a scenario “unrealistic”.

It would be based on a full return to normal as early as July.

Gold “after nearly two months of slow, like snorkeling, the French economy seeks (…) to catch his breath. But it resurfaced in a world that is no longer exactly the same as before the health crisis,” says the institute. The recovery will be “in the best progressive in the second half,” said the Insee.

On Monday, the governor of the Bank of France, François Villeroy de Galhau was also stated that the period of déconfinement would cost at least three points of GDP this year.

“I’ve always said that the 8 % fall in growth was a provisional figure (…) we should expect numbers of a recession very degraded for 2020 in France,” said Wednesday the minister of the Economy Bruno Le Maire said on Radio Classique.

He considered that the figures of the Insee “confirm that there is real recovery, but progressive”.

Since the beginning of the déconfinement, which started on 11 may, the activity is started again “cautiously, but distinctly,” in France, according to Insee. The French economy would be “approximately four-fifths of its pre-crisis level”, against two-thirds for the containment.

With the re-opening of most businesses and the return to work of many French, all sectors have seen their activity levels recover compared to the period of confinement.

In the business sectors, the most affected by the confinement, the loss of activity is -25 % versus -39 % before the déconfinement. It is -38 % in construction (compared to -75 % before 11 may) and -24 % in the industry.

The business climate has improved slightly in may, after reaching its historic low in April, although it remains particularly low.

The health concerns and the continuing disruption of the chains of production and supply in the way of the recovery.

Especially, some important sectors of the economy remain at a standstill, or nearly so, such as hospitality, entertainment or culture, even if cafes and restaurants will reopen in zones as “green” as early as June 2, according to the terms that the prime minister Edward Philip must reveal on Thursday.

Consumption left

In the meantime, households have already benefited from the reopening of the shops, with a rebound in consumption during the first week of the déconfinement.

But, warns the Insee, “a part of this rebound is punctual, corresponding to purchases that had to be deferred”, which is “not sufficient at this stage to deduce what will be the +steady-state+ of consumption over the next few weeks.”

All that due to uncertainties about the future — Bruno The Mayor has already warned that there would be bankruptcies and layoffs “in the coming months” — households may prove to be prudent in their purchases.

In may, the morale of households, remained at half-mast. However, the recovery of consumption, like business investment, will be essential to support the economy in the coming months. The Medef has called for measures to “boost” before the summer to support the request.

After plans of supports dedicated to sectors most affected, such as tourism, automotive and aerospace, the government prepares a stimulus plan overall for the start.

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