France’s Economic Rebound Is Stronger Than Initially Thought

(Bloomberg) -- France’s economic recovery from the coronavirus lockdown is stronger than previously expected, the Bank of France said Monday as it revised up its growth and inflation forecasts for this year and next.

The slump in the euro area’s second-largest economy during state-ordered confinement wasn’t as deep as initially reported, and recent activity has been better than business leaders had forecast, central bank surveys showed.

Labor markets won’t be as severely damaged as initially feared and economic output should return to pre-covid levels at the start of 2022, instead of mid-2022 as the Bank of France had forecast in June.

“The recovery is going a bit better than expected,” Governor Francois Villeroy de Galhau said in an interview with French daily Le Monde. “France will return to pre-crisis levels a bit before the European average.”

The less gloomy outlook in France and some other euro-area economies is relieving pressure on the European Central Bank to provide further stimulus. There was no change to policy at a meeting last week, even as officials have stressed the recent strength of the euro makes it harder to meet the inflation goal,

The French central bank’s monthly survey showed economic activity in August was only 5% below pre-crisis levels after a 7% gap in July. It expects little change in September, which would mean a rebound in gross domestic product of around 16% in the third quarter after a 13.8% drop in the second.

Activity loss will further narrow in the final quarter to between 3.5% and 4%, the Bank of France said. According to its survey, a third of business leaders are already back at normal levels and over half expect to have got there by the end of the year.

While some 800,000 jobs will be lost in France in 2020, unemployment will start declining from a peak of 11.1% in early 2021 and pass below 10% in 2022, the Bank of France said.

It slightly raised its forecast for HICP -- a harmonized measure of inflation -- by 0.1 percentage for every year to 0.5% in 2020, 0.6% next year, and 1% in 2022. Inflation in services was recently supported by sectors such as hairdressing and restaurants raising prices to recoup costs, the institution said.

Still, the central bank warned that its outlook is surrounded by the uncertainty of the Covid pandemic. On Saturday, France reported more than 10,000 new coronavirus cases, the largest daily increase since the end of the country’s lockdown.

“The upward revision of the economic forecasts should not be hide the fact the virus continues to circulate and hinder activity,” the Bank of France said.

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