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Containment measures cost the French economy 120 billion euros

Published on April 29, 2020 - 2 mins reading time
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A study by the Observatoire français des conjonctures économiques (OFCE) shows that the eight weeks of confinement resulted in a loss of 120 billion euros in business.

Containment, an exorbitant cost for the French economy

While the choice of an eight-week containment period has slowed the spread of the Covid-19 epidemic, the economic costs are particularly high. Containment measures could result in a loss of 120 billion euros for the French economy, while forced savings will amount to almost 55 billion euros, according to a study published by the OFCE. It also appears that public administrations, through the increase in the deficit, have absorbed almost 60% of the drop in national income.

For its part, INSEE anticipates an accounting loss of 3 points of annual GDP for one month of confinement, but expects an actual loss greater than this, as the end of confinement will not be accompanied by an immediate return to normal economic activity. According to the Institute, gross domestic product is likely to be clearly negative in the first quarter, and even more so in the second.

Recovery depends on consumers

Households have been forced to reduce their consumption of non-food goods, leisure activities and transport, while for most, income has been preserved through the short-time working mechanism. The loss of household income is estimated at 9 billion euros. Restrictions will continue, leading to costly adjustments in terms of unemployment. Individual entrepreneurs alone will suffer a loss of around 2 billion euros.

In eight weeks, the amount of accumulated savings has reached 55 billion euros, a sum that could have a significant economic impact when shops reopen. The Observatoire points out that if all of these forced savings are consumed, the loss of activity would fall from 5 to 2 points this year, and the deficit would increase by 0.9 points instead of 2.8 points. The study nevertheless reveals that, given the uncertainties associated with the end of the crisis, "the accumulated savings may not be consumed quickly".

The government estimates that French GDP will fall by 8% in 2020 as a result of the economic shock caused by the coronavirus. It also predicts that the public deficit will soar to 9% of GDP and debt to 115% of GDP, compared with 100% before the crisis began.

Containment measures have brought a large part of the French economy to a standstill, and the OFCE is not very optimistic, estimating a loss of activity of almost 120 billion euros.