French Economy Set for Firmer 2021 as Restrictions Hurt Less

The French economy is weathering the Covid pandemic and government restrictions better than previously forecast, putting it on a path to stronger growth this year, the Bank of France said.

Activity fell less than the central bank initially expected at the end of 2020 as household and business investment held up despite the lockdown in November. The central bank expects stronger growth in the second half of this year as health restrictions are lifted and vaccines slow the pandemic.

“We are gradually moving away from the massive public support measures seen in 2020 -- which were necessary and effective -- to private sector confidence,” Bank of France Governor Francois Villeroy de Galhau said on RTL radio Tuesday. “We expect a return to pre-Covid levels of activity in the spring of 2022, which is a bit better than what we forecast in December last year.”

French Economy Set for Firmer 2021 as Restrictions Hurt Less

The report supports other evidence that the euro area’s second-largest economy has adapted to Covid restrictions and will avoid a steep second dip. For now, the government hasn’t imposed a full lockdown to contain the resurgence of the virus, opting instead for a curfew combined with tough restrictions on leisure and hospitality.

Villeroy said the central bank’s forecasts are even “fairly cautious” as they are based on health restrictions being on average unchanged throughout the first half of 2021. The government has said the country may start returning to normal from mid-April.

The central bank also issued stronger forecasts for the labor market thanks to the “powerful shock-absorber” of state-financed furlough programs that translate into cuts in working hours rather than jobs.

The withdrawal of aid and an increase in business failures may mark a low point for employment later this year, the central bank said, but unemployment, which will peak close to 9.5% at the end of 2021, will average 8.9% over the whole year instead of a previously forecast 10.7%.

Despite the stronger outlook, the Bank of France also said uncertainty surrounding its forecasts is still “significant” due to the health situation.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.