French Economy Hit by Supply Problems as Activity Nears Normal

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French economic activity almost reached pre-pandemic levels in July as businesses largely shrugged off some renewed restrictions while supply difficulties increasingly constrained production.

Activity was between 1% and 1.5% below normal in July, the highest it’s been since the pandemic struck, according to the Bank of France’s monthly survey of 8,500 firms.

While business leaders expect a similar performance in August, the share of companies reporting supply difficulties rose for the third consecutive month to 49% in July. In construction, the measure was stable at 60%.

The central bank’s survey underscores how the European economies exiting lockdowns and the worst of the Covid-19 pandemic are increasingly running into difficulties ramping up production. The auto industry has suffered particularly from a shortage of semiconductors as order books fill up.

Businesses are also struggling with bottlenecks that predate Covid-19, including finding and hiring workers. In France, the share of businesses reporting hiring difficulties rose to 48% in July from 37% in May. In services and construction, the share of firms struggling to find workers is above 50%.

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