French Economic Activity Has Returned to 95% Normal Levels

(Bloomberg) -- French economic activity recovered to around 95% of pre-crisis levels in August, but progress will effectively stall now after the initial rebound, national statistics agency Insee said Tuesday.

Massive public spending on furlough and support for businesses helped shelter households and fuel a sharp rebound in consumption when confinement ended in May. While that support will continue, there is uncertainty about the pandemic and how consumers will spend savings.

Insee stuck to its previous forecast for 9% fall in GDP this year, with activity returning to around 96% by the end of 2020.

The French government currently forecasts a deeper slump of 11%. While ministers have said that figure may be revised given the strength of the summer rebound, they also warn of risks from Brexit, the U.S. elections or changes in Chinese economic policy.

“We are going in the right direction,” Finance Minister Bruno Le Maire said Tuesday on the sidelines of an event presenting parts of the government’s latest stimulus plan. “We have absorbed the shock, but significant international uncertainty means the recession figure I will give at the budget presentation will be changed, but only slightly changed.”

What Bloomberg’s Economists Say...

“France’s new stimulus plan for a total 100 billion euros will undoubtedly help lift the economy’s long-term prospects. But more cyclical support might be needed if the infection rate continues to surge and recovery stalls.”

--Maeva Cousin, euro-area economist. For full Insight, click here

With some industries at risk of long-term damage, economies everywhere are facing the prospect of not fully regaining pre-crisis levels of activity. The question for governments is whether to keep providing aid to non-viable businesses or let them fail as part of a wider restructuring.

Labor markets are also expected to worsen markedly in the coming months as support is gradually withdrawn. Insee expects unemployment in France to rise to around 9.5% by the end of the year from 7.1% in the second quarter.

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