French Economic Recovery Restrained by Extended Restrictions

France’s central bank cut its growth forecasts for this year and next, as longer-lasting restrictions to contain the pandemic put the euro area’s second-largest economy on a slower recovery path.

A second nationwide lockdown in November and the prolongation of some measures, including restaurant closures, mean economic output will only return to pre-crisis levels in mid-2022, the Bank of France said. In September, it forecast a return to that baseline about six months earlier.

GDP202020212022
December forecast-9.3%4.8%5%
September forecast-8.7%7.4%3%

The Bank of France said there is “strong uncertainty” around its forecasts, which assume the pandemic won’t stop immediately and the broad deployment of vaccines will only be fully effective toward the end of 2021.

With a quicker-than-expected improvement in the health situation, the economy would grow about 7% next year. If things got worse, output could contract 1% in 2021, it said.

“We are exiting a year of economic fog,” Bank of France Governor Francois Villeroy de Galhau said on France Inter radio. “The situation is bad but there are several reasons to be hopeful.”

Based on its monthly survey of businesses, the Bank of France said economic output was 11% below normal in November and the gap will narrow to 8% in December. It previously said activity was 12% below normal in November.

The outlook for labor markets slightly improved, with unemployment seen averaging 10.7% in 2021, the Bank of France said. It previously forecast a rate of 11.1%.

©2020 Bloomberg L.P.

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