France Predicted to Skirt Recession With First Quarter Growth

The French economy will avoid a second recession in the Covid pandemic as a steadying of activity is enough to fuel “slight growth” in the first quarter of the year, the Bank of France said.

Based on its monthly surveys of 8,500 firms, the central bank estimates economic activity rose to a plateau 5% below pre-crisis levels in December and will remain there through March. Business leaders in industry and construction expect a slight improvement this month, while their peers in services see activity stagnating.

France Predicted to Skirt Recession With First Quarter Growth

The report indicates France is on a better footing than predicted, with economists surveyed by Bloomberg currently expecting output to contract 0.4% this quarter after a 1.4% drop in the final three months of 2020.

Bank of France Governor Francois Villeroy de Galhau said the central bank’s measure of current activity also reinforces its 5% growth forecast for 2021.

“The recession is behind us,” Villeroy said on France Info radio Wednesday. “Growth will be at least 5% in 2021 and it will be one of the strongest in Europe.”

The French government has made only marginal changes to restrictions in 2021, opting for a curfew and the closing of bars and restaurants instead of a full, national lockdown. In the depths of the France’s first Covid lockdown last April, economic activity plunged to 31% below pre-crisis levels.

Still, the Bank of France cautioned that there is “broad margin of uncertainty” surrounding its March forecasts that will depend on the speed of the government’s vaccination program, the spread of new variants of the coronavirus and the possibility of stricter, localized restrictions.

“Business expectations reflect wait-and-see behavior in the face of this high degree of uncertainty,” the Bank of France said.

©2021 Bloomberg L.P.

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