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Economic recovery in France and Germany: where do we stand?

3/11/2021

In the eurozone, there are still some way to go to offset the loss due to the Covid-19 crisis. The activity in the services sector is suffering the most from the health restrictions and remains still well below its pre-crisis level. There are significant risks of a sharp deterioration in the labour market in the months ahead which has to be closely monitored.

TRANSCRIPT // Economic recovery in France and Germany: where do we stand? : March 2021

CHART OF THE MONTH

FRANÇOIS DOUX

Where do things stand now in terms of the economic recovery following the Covid crisis? Louis Boisset is here to update us on the situation in France and Germany.

Hello Louis.

LOUIS BOISSET

Hello.

FRANÇOIS DOUX

Our Chart of the Month looks in details the value added in the manufacturing and services sectors. First observation: we still have some catching up to do.

LOUIS BOISSET

That’s right. This chart shows how far we have come in narrowing the loss accumulated in 2020, but also how far there is still to go. At the end of 2020, we were still far from making up all the ground that had been lost over the course of the year. This observation is particularly true for the tradable services sector, which still lags far behind. As we know, health restrictions had an especially negative impact on services. Looking at the latest economic data for early 2021, we come to the same conclusion. Tradable services are really having a hard time catching up, while things are much better in manufacturing, which seems to be on an upward trend.

FRANÇOIS DOUX

How do you explain the disparities between France and Germany?

LOUIS BOISSET

It is mainly due to the structure of their economies. Germany is a major exporting economy. The country, and its manufacturing industry in particular, has been benefiting from the normalisation of world trade, which has returned to pre-crisis level. The French economy, in contrast, is less export-driven, and has thus not benefited as much. This is the main reason for the difference in catching-up momentum.

FRANÇOIS DOUX

Last question: what are the consequences of this lag, for both France and Germany?

LOUIS BOISSET

Many economists, including ourselves, believe that the big impact will be on the job market. So far, the impact of the Covid-19 on the job market has been quite limited thanks to massive fiscal supports. Nonetheless, there is a risk that job market conditions could deteriorate sharply and that the unemployment rate could rise, especially in some key sectors, notably tradable services, as this chart shows. The proportion of jobs at risk is particularly high in retail, transport, and hotel & restaurant services. We will have to monitor closely these developments in the months ahead.

FRANÇOIS DOUX

Thank you, Louis Boisset, for this update on the catching-up movements in France and Germany. We will be back in a moment with Three Questions for William De Vijlder on the bond market and the causes and consequences of the upturn in long-term rates.

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