According to an Insee note presented on Thursday February 4, the French economy is holding up well despite the persistence of a complex health situation. Figures for the last quarter of 2020 show a contained decline in activity, suggesting that 6% GDP growth in 2021, as the government hopes, is not an "unattainable" objective.
Economy less affected by second containment
In 2020, GDP plunged by 8.3%, a considerable shock that will undoubtedly have lasting repercussions on unemployment, incomes and employment. The fourth quarter of 2020, marked by a second confinement, led to a slowdown in economic activity, albeit to a lesser extent than the stricter confinement in the spring.
In November 2020, economic activity was down 8% on pre-crisis levels, and 4% in December. However, forecasts had been more pessimistic, with economists predicting a 12% fall in November and 8% in December. This contained impact is due in particular to a smaller drop in activity in the service sector.
Businesses have learned a number of lessons from the confinement of the spring, and have learned to adapt, enabling GDP to stabilize at the end of 2020 at a level 5% below its pre-crisis level, whereas estimates had forecast a fall of 8%.
Against this backdrop, economists do not consider the target set by French Finance Minister Bruno Le Maire of 6% GDP growth by 2021 to be "unattainable". However, everything will depend on the evolution of the health context and activity restrictions in the weeks and months to come.
An uncertain trend, linked to the health context
With the shadow of a new lockdown looming since the beginning of the year, and the 6 p.m. curfew accompanied by additional restrictions (limited travel outside the country, closure of non-food stores in shopping malls over 20,000 m2), France's economic activity in 2021 remains conditional on the evolution of the Covid-19 epidemic.
Insee has drawn up several scenarios, ranging from a continuation of current health restrictions to a tightening that would result in further confinement.
Should the epidemic stabilize and current restrictions be maintained until the end of the 1st quarter of 2021, business could continue to recover at a slow pace, largely thanks to the industrial sector. Services, on the other hand, would continue to be heavily impacted by the shutdown of the hotel and catering sector. In this scenario, GDP could grow by 1.5% in Q1.
On the other hand, a new lock-in would once again halt the recovery, or even lead to a decline in economic activity. Thus, if such a lock-in were to be implemented in the same way as in November, it would halt GDP growth if it were to last a month, and lead to a 1% drop in GDP over the quarter if it were to last 7 weeks.