Will the economy of France shrink again?

The pandemic era has thrown up so many economic questions, but now we seem to be entering a new phase. Over the past day or two it has been La Belle France which has been exhibiting this. I have pointed out more than a few times that the tendency for forecasters official and otherwise to assume a strong economic bounce back in 2021 and 2022 was based on little more than Hopium, as we are still less than certain about 2020. An example of the issues facing this year came from the BBC a couple of days ago.

Paris will shut all bars completely from Tuesday after the French government raised the city’s coronavirus alert to maximum following a period of high infection rates.
Bars, gyms and swimming pools will all be closed for two weeks in a bid to curb the spread of the virus, the city’s police chief said.

But restaurants will remain open if strict hygiene rules are in place.

On Sunday France reported 12,565 cases of Covid-19.

France24 added to the theme only yesterday.

Covid-19: France records new all-time high of nearly 19,000 cases in 24 hours.

As it goes onto point out there are economic consequences as it highlights a French tradition.

They form part of a centuries-old tradition and are an iconic feature of the French capital, but Paris’s historic riverside booksellers, known as ‘bouquinistes’ are under threat. Like many other businesses that rely on tourism, Covid-19 has taken a devastating toll on their income.
A total of 227 bouquinistes, who sell second-hand books as well as sometimes souvenirs, line the embankment of the River Seine.

This returns us to a point we looked at when the pandemic began which is the impact of such an event on economies which rely on a lot of tourism.

The Economic Situation

France’s official statistical body Insee has tried to allow for the changing situation.

Alongside “barrier gestures”, more restrictive containment measures which more directly affect economic activity (closures of bars, restaurants, sports halls, etc.) are, at this stage, more targeted territorially and sectorally than in the spring. Air passenger transport remains severely affected, as it has since the start of the health crisis.

We have seen an example of the latter issue in the news today with Easyjet suggesting it will lose more than £800 million this year with passenger numbers halved.

Their analysis leads to a change in their view and the emphasis is mine.

In September, the continued improvement in the business climate in France is mainly due, in most sectors, to improved judgment on past production, while the business outlook for the next three months is down. , according to business leaders interviewed in business surveys.

Below is where they think we are.

After the sharp rebound associated with deconfinement (+ 16% expected in the third quarter, after – 13.8% in the second and – 5.9% in the first), economic activity could thus slow down at the end of the year under the effect of the resurgence of the epidemic.

What might slow down? Again the emphasis is mine.

In a scenario where, in the fourth quarter, the most affected services (hotels and restaurants, transport services, recreational and leisure activities) would return, after an improvement during the summer, to their level of activity of last June and where investment should remain, by a wait-and-see policy, at a level close to that of the third quarter, growth would be zero at the end of the year.

That is more than a little uncomfortable for the official predictions for 2021 as we should be rebounding rather than flat-lining. In terms of numbers we have this.

In this scenario, French GDP would remain, at the end of the year, 5% below its pre-crisis level, as on average during the summer……..In total for the year 2020, the forecast of GDP contraction remains in the order of -9%.

The swing factor here is consumption. We will see stellar levels of growth for the third quarter based on the numbers we know. But like in A Question of Sport the real issue is what happens next?

The continuation of these restrictions,
and the dissipation of catch-up effects by
elsewhere, would lead in the fourth quarter to
consumption slightly lower than
in the previous quarter. On the whole of
the year, consumption would decrease by 7%
compared to 2019.

It has been an extraordinary year with normal incomes hammered but government intervention leading to this.

With the rebound in consumption – even attenuated at the end of the year – the household savings rate, which had almost doubled in the second quarter (due to forced savings), should come back to around 17% in the second half, a level slightly higher than before the crisis.

At some point this will end and then consumption will face the consequences of this.

The unemployment rate should jump in the third quarter and reach 9.7% at the end of the year.

Bank of France

It has joined the fray this morning with this.

According to the business leaders interviewed, activity is, as expected a month ago, stable in September in
industry as in services and construction. It remains overall below its previous level
crisis, but still with a strong heterogeneity between sectors. Outlook for the month of October
also show a relative stability of activity in industry, services and construction.

It points out that there is a wide disparity in sectors but at least in some areas it suggests falls last month.

The production capacity utilization rate slipped slightly to 73% on average in September after 75% in August (and 79% before the crisis). It is on the rise in the chemical industry but falls significantly in the aeronautics and other transport sector.


If we take a look at the position it is not the overall situation that is the issue it is the structure. The 9% fall in GDP is well within the margin of error at a time like this from the Europa summer forecast.

but the forecast for 2020 has been revised down to about –
10 ½% from close to -8 ¼% in the spring.

The issue is the direction of travel which began hopefully with a strong recovery push. But now we see that rather than recovering towards the end of the year we may see stagnation or if the latest numbers are any guide a further decline. This poses quite a challenge to the next part of the summer forecast.

The projected economic recovery is set to remain on track in 2021, with GDP expanding by some 7 ½%.

We should of course have realised via the use of the phrase “on track” which meant anything but in the Greek crisis. In terms of specifics as we have noted today this part is being questioned.

After sinking in the first half of the year, private consumption is projected to gather momentum from the second half onwards.

If we now switch to what this means? We have two major consequences. The first is that the depression starting in 2020 looks set to be longer than expected just like wars which invariably are predicted to be over by Christmas. Sadly that means more people will be unemployed for longer.Should the French economy contract again it will be four out of the latest five. Also it means that there will be no end in sight to central bank intervention and we may see even more negative interest-rates and QE bond buying.


23 thoughts on “Will the economy of France shrink again?

  1. Hello Shaun,

    re: ” it means that there will be no end in sight to central bank intervention and we may see even more negative interest-rates and QE bond buying.”

    yes , yes we will. For all Eurpean countries more or less.


  2. Great blog as usual, Shaun.
    I don’t know if you or any of your readers watched the US VP debate yesterday. Unless I missed it, Senator Harris didn’t bring up her ludicrous accusation, made earlier on the campaign trail, that the US economy has performed worse economically than most other advanced countries in the pandemic. France is a good example of superior US performance. From its 2019Q4 peak to its 2020Q2 trough the US economy contracted by 10.2% while the French economy contracted by 18.9%. From its 2019Q3 peak to its 2020Q2 trough the French economy contracted by 19.0% while the US economy contracted by 9.7% over the same period. Donald Trump pom pom boy Jesse Watters on Fox News’s The Five has repeatedly claimed that the US economy had a milder downturn and a stronger recovery than all other developed countries, which is ludicrous. It has done much worse than no-lockdown Sweden. However, it is certainly true that the American economy has outperformed most developed countries so far, including France.
    Zero growth for the French economy in 2020Q4 would be disappointing. Just the same, a trough is a trough, and the French have only suffered a three-quarter recession, that hit bottom in 2020Q2.

    • Hi Andrew and thank you

      No I did not as the hours were pretty unsocial here for it. Breakfast TV over here concentrated on the fly which landed on Vice-President Pence’s head and not much else. I gather though it got a good audience ( 51 million) in the US.

      Relatively the US has done well in economic terms as you say and it had also recovered relatively well from the credit crunch. But it is not the leader of the pack.

  3. Anecdotal new from the Riviera. Mrs W and I had booked for week in Venice but the Italian response to increased French ‘cases’ put a stop to that. So we decided to spend a week going along the coast from Antibes to Saint-Tropez instead. Missed the storm which hit the coast further east, mostly has been very good weather, today glorious.
    So far have had to wear the face nappy twice, once for the Picasso museum in Antibes and once by the harbour at Saint-Tropez when the annual regatta came ashore. As soon as the gendarmes depart everyone resorts to warming their chins.
    Almost every restaurant/bar open that we have seen ( not visited!) along the coast. Spent one evening in a very lively Irish pub in Cannes , sans masks, live music… no covid.
    As almost all schools/colleges are open and ‘working from home’ is not really a ‘French thing’, I would hazard a guess that the economy in general is returning to its normal sluggish growth state.
    I cannot comment on Paris, as like London and the UK, its not represntative of the rest of France.

    • Hi JimW

      The storm did not miss Battersea and we got a lot of rain. I do an exercise class on Saturday mornings and we did it via Zoom as we are not allowed indoors ( too many) and outside was even too much for me as it poured.

      Mask wearing in shops is about 85% or so and Tesco’s by Battersea Park has resorted to restricting numbers and queues again. It has red and green traffic lights on the door which leads to people arguing with the security guard.

      I see people out in the park wearing masks and am regularly tempted to point out that as it is likely to get rather damp with moisture from the breath they are probably worse and not better off. At least people have stopped running in them which was madness in my view.

    • To all those who marked this down. Have you personal experience of the Med coast of France this week, if so, please share. If you don’t, get some help., quickly.

  4. This shows up the two faulty beliefs currently running the show:

    First, that printing money to buy bonds will stimulate the economy. As the mortgage broker I mentioned said to James O’Brien, it just ramps rents and house prices, sucking away people’s ability to consume.

    Secondly, that the money that people have saved will all return to consumption. It will not, any more than companies will have the same cash flow after having to cover fixed costs and repay debt they have taken on. Many people will use what they have saved to pay down their own debts, save or pay for pricier assets – essentially the paradox of thrift.

    We come back to the same question: how do we move back to a world of normal rates? I suspect most of us will be carried out feet first before that happens.

    • Hi Dave

      Twice today I went into shops and was the only customer. As my tablet had expired I needed a new phone as they have improved so much I thought a better phone would do the job rather than another tablet.Nothing grand just an up to date one. I collected it at Argos in Victoria and was the only customer.

      Later I went to the 02 shop in Chelsea because the 02 helpline was no such thing as it kept cutting me off as I tried to order a new SIM card. So I went to physically get a new one. They only allow one customer at a time but were very helpful.

      But as a generic how can retail anywhere survive in this situation?

  5. This is for Buzz for the record …..

    “Of the 115 with a positive result, only 16 reported symptoms, with 99 not reporting any specific symptoms on the day of the test.

    Moreover, 142 people who reported symptoms on the day of the test did not test positive for COVID-19, vastly outnumbering those who tested positive.”


    hide the fact in plan site but ignore it

    face masks can be 30% effective , not “are effective” but ” can be”

    Paris is in a grip of this , I cannot see the French economy recovery happeneing if we just lock down all the time .

    What will it look like after 2-3 years of this ?


    • forbin

      New data in the UK suggests that the coronavirus is killing 3 times more than flue!


      Two BOE members now hinting at negative interest rates for the UK and with more stricter lockodowns to be announced shortly particularly up North where I live I still believe we will see a cut in the bank rate to zero at the BOE meeting in November.

      Some will think a cut of 0.10% wont make much difference but as TESCO says every little helps and the GOV will want to try and get Joe Public to spend some of their savings the last few months.

      • Peter, The statistics you quote include deaths falsely attributed to Covid,people who have died and tested positive using a totally discredited test that gives a vastly inflated false value of positives, the cause of death was in no way exclusively due to a virus that has ye to be proven to be as lethal as you say.

        Perhaps you might gain more credibility with your posts if you use the correct spelling of flu and not flue.

      • Hello Peter,

        Yes I read the report , thanks. I have seen the ONS data too.

        ONS figures show to date 18th Sept that 52,631* deaths are CV-19 related and that 93% of those deaths occured in Hospital (63.4%) and care homes (29.6%) .

        Also shows that CV-19 deaths are now 2.23% of total deaths ( week ending Sept 25th) up from 1.01% and that 86.51% of those deaths were over the age of 65.

        Total deaths are still close to 2019 figures I use as the bench mark ( and I use 2018 too as that was a bad flu year ) .

        * yes this figure is different from the headline news .

        HMG have more upto date figures and if we are in a major resurgance of the pandemic why on earth are we delaying a full lock down for ?

        oh well


        • Corbin,

          I question the same on.a full lockdown, however Borris is in a rock and hard place, he wants to minimise the damage a lockdown will. cause and on the other hand trying to prevent a meltdown with the NHS and the pandemic getting out of control.

          I happen to think the virus is already out if control up North where l !I’ve and I did not agree with the GOV encouraging people to get back to the office when they could adequately work from home nor the Rishi DIshi subsidised meals which I thought could ha e increased the virus.
          Neither do I agree with all the political blame being done on virus testing the fact is Joe PUblic in many cases not adhering to social distancing with a could,t care less attitude which many students have shown because they have taken the view they will be less affected which is quite selfish.

          • Boris’s actions prove he is doing neither.
            I could get figures to show that covid outnumbers ALL OTHER CAUSES OF DEATH if I wanted.
            Just test everyone on the Liverpool pathway in hospitals.
            You’ll get a large number of false positives, & the overwhelming majority will be dead within 28 days.
            Not one of the false positives will have had covid, but they’ll all be added to govt. statistics.

            One more point: the first basic adage of lawyers is, “Don’t ask a question unless you know the answer.”
            Sir Keir Starmer QC

    • The scamdemic continues, in addition to the hospitals empty of traditional patients AND victims of this “deadly” plague, we have the Nightingale centres also empty(remember them???)built to house the millions of dying victims MOST HAVE NOT HAD A SINGLE PATIENT and are now being mothballed.

      And Project Fear has gone into overdrive, using the military to try and scare people, why use the military in full combat uniform?Remember when Blair put the army and military vehicles on the streets of London?

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