While France has been under lockdown for 15 days due to the Covid-19 epidemic, Insee predicts that a two-week extension would reduce annual French growth by several points of GDP.
The obvious economic impact of Covid-19
The coronavirus epidemic is having a major impact on the French economy. According to Insee, activity is now at around 65% of normal. The biggest losses are currently in industry (excluding agri-food) (around -52%), market services (-36%) and construction (-89%). The agriculture and agri-food sectors are also experiencing a -4% drop in activity compared with normal times.
Consumption at half-mast
In parallel with this unprecedented health crisis, French household consumption has collapsed. It is expected to fall by nearly 35%. While the food industry has managed to pull itself up by its bootstraps, thanks to the massive purchases made during the first few weeks by the confined French population (an average of +6% compared with normal activity), other sectors are being heavily impacted: clothing, textiles and transport equipment have all closed their stores. Spending on these items has been cut by 90 to 100%.
Containment costs GDP points
According to economist Daniel Cohen, French fiscal policy is well designed, and should be able to compensate for the announced loss of 3 points of GDP per month of confinement. This prediction will be doubled if the confinement period is extended by a further month. The longer the period of confinement, the more limited the growth prospects. This drop in GDP, marked by a sharp fall in consumption, should significantly reduce growth forecasts for 2020.
Business climate down
The business climate indicator recorded its sharpest fall in 40 years, dropping 10 points in March, a sharper fall than during the 2008 crisis. The business sector now scores 95 points in March, a far cry from February's 105 points. In the services sector, the indicator fell by 14 points, corresponding to its March 2015 level. Wholesale trade lost 4 points, while retail trade was down 13 points. In its wake, the employment climate fell by 9 points, its biggest drop since its creation.
What's the outlook for growth in 2020?
According to French Economy Minister Bruno Le Maire, the current health and economic crisis is comparable to the economic collapse of 1929. Even if the French government plans to inject 45 billion euros in response to the crisis, this will remain "a starting point". The real figure for French growth is likely to be negative in 2020, but positive in 2021, according to Banque de France Governor François Villeroy de Galhau, pointing out that giving figures for 2020 makes little sense at present. The figures will depend on how long the health crisis lasts, and then on our ability to move forward.