In its new projections, the Banque de France is more optimistic due to better than expected resilience of consumption and investment. The French GDP should return to its pre-crisis level in early 2022.

A “bird’s wing” recovery. The Bank of France on Monday released its new projections for the recovery of the French economy. These figures are particularly scrutinized as activity fell by historic 13.8% in the second quarter, after -5.8% in the first, due to the coronavirus health crisis.

Unsurprisingly, GDP is still expected to decline sharply this year but in a smaller proportion than that estimated last June. The monetary institution is now counting on a recession of -8.7% in 2020 when it predicted -10.3% three months ago.

“The French economy is gradually recovering. So it has come a long way, because the economic shock was brutal which has no equivalent in contemporary history, but I think we are on the right track. direction, and in the coming days we will be able to revise the recession figure that I had announced to – 11%, that will remain a high figure, but it will be better than – 11% “, declared the Minister of the Economy Bruno The Mayor this Monday morning on France 2.

Along the same lines, the loss of activity returned in August and September to around -5%. A level that was not expected before the end of the year in the latest projections. Finally, the Banque de France expects a loss of activity of between -3.5 and -4% at the end of 2020.

The Banque de France more optimistic for French growth
The Banque de France more optimistic for French growth © Banque de France

Resistance of internal demand

These estimates, better than expected, can be explained both by a smaller shock than expected in the second quarter and because the rebound is stronger, in particular thanks to good resilience of private domestic demand (consumption and investment).

“And short-term indicators suggest that the rebound in private consumption should continue in the second half of the year to return to a level close to that of the end of 2019”, write economists at the Banque de France.

Under these conditions, the savings rate which peaked at 27.4% in the second quarter is expected to decline “significantly in the second half of 2020”. The additional so-called “forced” savings accumulated by households throughout the year should therefore be less than the 100 billion euros calculated in June.

Return to pre-crisis level at the start of 2022

The Banque de France has also revised its estimates for the next two years, with a return to the level of activity at the end of 2019 expected in the first quarter of 2022 against mid-2022 in the June projections.

“Benefiting from a faster rebound than anticipated at the end of 2020, annual growth in 2021 is back slightly up (7.4% vs. 6.9%). That of 2022 is revised slightly down (3% vs. 3, 9%) because the stronger rebound in 2020 and 2021 reduces the catching-up effect in 2022, even if growth would remain above its potential over this horizon, ”further details the Banque de France.

In the end, France should experience a stronger rebound than the euro area average after recording one of the strongest contractions in activity due to tighter containment.

Persistent uncertainties

Analysts from the Banque de France nonetheless recall that these projections are based on an assumption that “protective measures against the virus would remain targeted and that companies would continue to adapt to them”.

Beyond the coronavirus epidemic, other uncertainties are likely to cause the forecasts to move up and down. Starting with Brexit and the risk of a “no deal” which is becoming more and more credible.

As for the recovery plan presented by Jean Castex at the beginning of September, it is “likely to support activity but with a scale and a horizon which remain to be assessed”, continues the institution. Its projection only incorporates part of the measures provided for in the framework of this 100 billion euro plan, such as the extension of the partial activity mechanisms and certain measures in favor of youth employment and Segur of health.

While these elements should have a positive impact on growth, the sharp drop in exports in certain sectors of activity (tourism, aeronautics, etc.) could, on the other hand, “weigh on activity for the long term”.

The unemployment rate expected to peak in early 2021

On the employment front, the partial activity mechanism made it possible to initially contain the impact of the fall in activity in the first half of the year with job losses essentially linked to the adjustment of the temporary employment and non-renewal of short contracts.

Employment is therefore lagging behind activity. The indicators will therefore continue to contract at the end of 2020-beginning of 2021, this time with more lasting job losses in companies in difficulty.

“The net job losses in the whole economy would total a little over 800,000 at the end of 2020 compared to the end of 2019”, notes the Banque de France, or the equivalent of the number of net jobs created over the past three years. She specifies, however, that this projection is “less unfavorable than what we expected in June, in line with the less marked fall in activity, in particular in the commercial sector”.

The recovery in employment is expected in the course of 2021 and would increase by just over 700,000 over the two years 2021-2022. Unemployment is expected to rebound to 9.1% this year and peak around 11% in the first half of next year, before dropping below the 10% threshold in the course of 2022. “The projection of the The unemployment rate remains very uncertain, however, due to the difficulties of measures in the current circumstances and business behavior that is difficult to predict, “warns the Banque de France, however.