Based in Paris, BNP Paribas' Economic Research Department is composed of economists and statisticians:
The Economic Research department’s mission is to cater to the economic research needs of the clients, business lines and functions of BNP Paribas. Our team of economists and statisticians covers a large number of advanced, developing and emerging countries, the real economy, financial markets and banking. As we foster the sharing of our research output with anyone who is interested in the economic situation or who needs insight into specific economic issues, this website presents our analysis, videos and podcasts.
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Based on May and June business confidence surveys, the French economy has been rebounding more vigorously than expected from the third lockdown. We have raised our Q2 growth forecast, from near zero to near 1% QoQ. In Q3, the mechanistic rebound would bring growth to about 3% QoQ. Growth is expected to ebb thereafter as the catching-up effects dissipate, although it should remain high, bolstered by the fiscal impulse. The downside of the vigorous upsurge in demand is that it is squeezing the supply side, which is less responsive. The ensuing supply chain constraints, higher input prices and hiring difficulties are all sources of friction that must be monitored since they could hamper the recovery
The fiscal response to the health crisis has been swift, substantial and multi-pronged. Emergency measures, seeking to cushion the recessive shock and facilitate economic recovery, have been joined by recovery packages that support the ongoing upturn and pave the way for future growth. There are, however, disparities between countries as to the sums involved and the distribution of the measures. On our analysis, Italy has made the biggest effort, with a total running at 71% of GDP. It is followed by Germany, with 47%, Spain, with 31%, and France with 26%. As a percentage of GDP, Germany, France and Italy have made greater use of liquidity measures and guarantees, whilst Spain has focused on fiscal measures
Our Pulse continues to show a significant improvement in France’s economic situation in recent months compared to the previous three months. For activity indicators, the blue area largely surpasses the area marked by the dotted line, whereas for the confidence surveys, it exceeds or is very close to the grey hendecagon that delineates the long-term average.
Our barometer shows a marked improvement in France’s economic situation in recent months compared to the three previous months. Yet the improvement is helped by a very favourable base effect. In April 2021, the base effect should be favourable again, despite another lockdown.
The increase in supply side difficulties identified by INSEE’s economic surveys in April 2021 requires a closer look. It is to be hoped that it will not hold back a recovery that is only just beginning to take shape. The rise has been particularly noticeable in the industry sector and has mainly been blamed on procurement problems that significantly exceed average levels from past years. In the construction sector, a shortage of labour has been the main difficulty (as it was before the crisis) but procurement constraints have also increased sharply. In the services sector, supply side difficulties relate primarily to health protections measures. In this sector however, demand side problems are affecting a greater number of companies
Employment and the jobless rate are both expected to rise in 2021, but the size of these movements is very uncertain. The rise in employment is likely to be limited, while the upturn in the jobless rate risks being big. The France Relance recovery plan will surely help boost employment. Uncertainty over the size of its rebound is linked in part to the vigour of the economic recovery. Above all, employment recovery will be hampered by several headwinds: the lagged impact of the GDP plunge in 2020, the increase in corporate bankruptcies, persistent sector differences, the return to work of furloughed or short-time workers, and corporate efforts to restore productivity gains and margins. As to the unemployment rate, the dynamics of employment and the labour force are both uncertain
Our chart shows an improvement in the French economy over the last few months, compared to the previous three ones: the blue-shaded area is larger than the dotted area. However, the picture that emerges from the monthly changes in the component indicators is made less clear by their yo-yo movements.
Contrary to what we were led to expect in late 2020, the discovery of vaccines did not end the stop-and-go nature of the recovery. In early 2021, due to the emergence of variants and the slow pace of the vaccination campaign, the exit from the crisis continues to follow a jagged trajectory. The light at the end of the tunnel seemed to be getting closer (Q4 2020 GDP did not decline as sharply as feared; a technical recession was apparently avoided in Q1 2021, with feeble but positive growth) but now it is fading again (the rebound has been pushed back until Q3, with Q2 growth verging on zero, and it could even slip into negative territory)
In 2020, the Covid-19 pandemic had a much smaller impact on the French labour market than on GDP. On an average annual basis, GDP growth plunged 8.2% while private payroll employment declined by only 1.7%. The unemployment rate even fell slightly compared to 2019 (-0.4 points on an average annual basis). Employment was buffered by emergency support measures, notably the massive use of job retention schemes, which is the main reason why the overall negative impact was so mild
We took away three key points from the detailed breakdown of the Q4 2020 quarterly accounts. First, households reported remarkable purchasing power gains in both Q4 2020 (+1.5% q/q, +1.9% y/y) and full-year 2020 (+0.6%), even though GDP contracted (-1.4% q/q, -4.9% y/y; -8.2% in annual average terms). The resilience of household purchasing power is largely due to emergency support measures...
Looking beyond the short-term economic shock, the Covid-19 pandemic and the exceptional health protection measures introduced to contain the virus raise many questions as to the lasting consequences of the crisis. The issue of zombie firms, which is far from new, has taken on a whole new dimension, as their weight in developed economies has progressively increased since the 1980s. Massive public interventions to tackle the effects of the pandemic, whether by governments – debt moratoriums, cancellations of employer social security contributions, widespread use of short-time working schemes, etc. – or by central banks – increase and prolongation of asset purchases schemes – could result in keeping non-viable companies afloat, raising fears of a zombification of economies.
2020 closed with a quarter-on-quarter (q/q) fall in GDP of 1.3%, according to the first estimate of the Q4 national accounts published on Friday 29 January. This was a much smaller fall than expected (we had estimated -4% q/q, in line with INSEE and Banque de France estimates). The full year contraction in GDP was 8.3%. This good surprise came mainly from business and households’ investment and exports, which rose instead of falling as expected.
INSEE’s composite business climate index improved slightly in January, gaining 1 point to 92, whilst Markit’s Composite PMI saw a marked 3-point drop, to 47. These two surveys often move in opposite directions in the same month. Which should we believe this time around? We favour the INSEE index. In general terms it gives the more reliable signals. And in current circumstances its relatively positive message – given a still worrying health situation – also looks likely to be more accurate. In particular, it is in line with the stability of the Google Residential Mobility indicator for January compared to December (monthly averages). This indicator is one of the new arrivals helping with closer monitoring, in real time, of the impact of the Covid-19 crisis on economic activity
The huge recessionary shock in H1 was followed by an equally spectacular rebound of economic activity in Q3, with an 18.7% jump in real GDP, although it will remain short-lived. The recovery has turned out to be W-shaped: GDP is expected to fall again in Q4 because of lockdown measures reintroduced on 30 October to tackle the second wave of the covid-19 pandemic. However, the second V should be less pronounced than the first: the decline should be smaller because the lockdown measures are less stringent, and the rebound should also be smaller because restrictions will remain in place and the economy is weakened. There is still a long way to go, but the arrival of vaccines means that there is light at the end of the tunnel
Although the economic impact of the November lockdown will certainly not be as harmful as the one last spring, there is still some uncertainty over the size of the Q4 2020 GDP contraction. The INSEE and the Bank of France both estimate that the economy was operating at 96% of normal levels in October, before falling back to 88% in November...
According to the INSEE flash estimate, private payroll employment in France rebounded by 1.8% q/q in Q3 2020, after dropping 2.5% in Q1 and 0.8% in Q2. France has recouped a little more than half of the jobs losses in H1 (345,000 jobs out of a total of 650,000). Employment is now 1.5% below its pre-crisis level, compared to 4% for GDP. Job variations have been remarkably smoother relatively to GDP, both on the downside and on the upside. This reflects the massive use of job-retention schemes enabled by the government’s decision to strengthen the system as part of emergency measures taken last spring to cushion the shock of lockdown. Employment is expected to decline again in Q4, in the wake of the economic activity relapse under the impact of the new lockdown
In the draft 2021 budget, the French government predicts budget deficits of 10.2% of GDP in 2020 followed by 6.7% in 2021 (from a deficit of 3% in 2019). The government debt to GDP ratio is expected to rise by nearly 20 points, to 117.5%, in 2020, before dropping slightly, to 116.2%, in 2021. These unusual figures bear the traces of the massive recessionary shock in the first half of 2020 caused by the Covid-19 pandemic, and the similarly massive fiscal response as the government has sought both to lessen the impact of the crisis and to support the recovery. And the numbers are still climbing, as a result of the second wave of the epidemic this autumn. When it comes to supporting the recovery, the France Relance plan makes EUR100 billion available over the next two years
The Q3 2020 rebound in the Eurozone GDP growth was stronger than expected: 12.7% q/q, compared to expectations of 10.5%. Of the region’s four biggest economies, France reported the strongest rebound followed by Spain, Italy and Germany. This rebound only partially erased the massive negative shock earlier this year. In Germany, France and Italy, GDP was still about 4% below the Q4 2019 level, while Spanish was still down by 9%. All components of demand contributed to French GDP growth. Sector differences reveal the heterogeneous impact of the shock. In all four countries, the rebound was largely mechanical, but other factors also came into play. Emergency measures to offset the impact of the lockdown last spring constituted a strong support
The main economic news is the publication by INSEE, on Friday 30 October, of its preliminary estimate for French GDP growth in Q3. The surprise has been on the upside, as the figure of 18.2% q/q growth is higher than our forecast of a 16% q/q gain. The rebound has been as spectacular as the collapse that preceded it (-5.9% q/q in Q1 and -13.7% q/q in Q2), but did not make up all of the ground lost: GDP is still 4% lower than its level at end-2019. All components of GDP showed better than expected improvements. The contribution from changes in inventories, which was more negative than expected, took a little of the shine off the recovery...
Has household consumption, the driving force behind French growth, stalled? Or was it actually in the process of rebounding? In 2019, household consumption rose at an average annual rate of 1.5% in real terms, which is considered to be a disappointing performance. But “disappointing” on what grounds and from which standpoint? Are we really dealing with a feeble rebound? These are difficult questions to answer, since everything depends on the perspective we take and the determinants we look at. In this article, we will try to put household consumption into context, and provide answers and explanations for the above issues. In a descriptive analysis in part one, we examine household consumption’s role as a growth engine, its momentum and composition. The second part is explanatory
After a rapid restart in May and June, the economy was back to 95% of its normal level in August. However, the improvement is now slowing as the automatic catch-up effects fall away and as substantial disparities between sectors and persistent public health constraints and uncertainties remain in play. Even so, Q3 is expected to see a substantial rebound (of around 15% q/q). It will be in Q4 that growth is likely to fall back like a soufflé. This period will determine the next chapter in the recovery. Hence the significance of the stimulus package in its double role of softening the blow from the crisis and boosting the recovery now under way. We estimate that this package will add 0.6 of a point to growth in 2021, taking it to 6.9%, after a contraction of 9.8% in 2020.
Signs of the French economic recovery since the lockdown was lifted on 11 May are starting to show in our Pulse barometer...
After a massive recessionary shock, the French economy has been showing signs of recovering rather rapidly since May, raising hopes for a V-shaped recovery. Markit’s composite PMI index and household spending on goods both rebounded spectacularly, which is encouraging. But these gains were largely automatic and will lessen as the catching-up effect wears off. To return to pre-crisis levels, it will probably take longer to close the remaining gap than it took to regain lost ground so far. There are several explanations: sector heterogeneity, ongoing health risks and the scars of the crisis. We foresee a U-shaped recovery (-11.1% in 2020, +5.9% in 2021). The risks seem to be well balanced, thanks notably to support measures that have already been taken or are in the pipeline.
While the economic horizon cleared up a bit in May, the improvement was much bigger in June. Given its construction, our Pulse does not yet show any traces of this rebound, which is just as remarkable as the preceding plunge [...]
The shape of the post-crisis recovery will depend on the characteristics of each economy, the fiscal response and the level of integration in global value chains. Even before the COVID-19 crisis, some eurozone economies were more vulnerable than others. High levels of debt or unemployment could limit the strength of the recovery. At a domestic level, the sectoral structure, the pattern of private consumption and the labour market situation will be crucial. A high dependency on tourism, a sector durably impacted by the crisis, could hold back the recovery. At the external level, a slow recovery in global trade would hit the most open economies. Moreover, the distortions in global value chains during this crisis could weaken the most highly-integrated economies over a longer period.
