eco TV

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.

View more videos Eco TV

On the Same Theme

6/16/2021
France: a majority of State-Guaranteed Loans to SMEs were taken on a precautionary basis 6/9/2021
One year after the introduction of State-Guaranteed Loans (SGLs), 39% of managers of the SMEs that took them out have indicated that they have made little or no use of the funds, whilst barely one-third stated that they had used the majority of their loan. This precautionary behaviour led companies to hoard all or part of their SGL in order to build up a liquidity reserve under favourable terms. Meanwhile, the share of managers who expect to repay their loans in full over several years has increased (41% in September 2020 to 56% in April 2021), whilst the proportion expecting to make at least partial repayment in 2021 has decreased (from 36% to 23% respectively). The proportion of companies considering that they will not be able to repay their loan in full has remained fairly stable since the mechanism was introduced (5% in April 2021). With the final subscription date set at 30 June 2021, the EUR 20 bn in Recovery Participatory Loans (“prêts participatifs Relance”) and the Recovery Bonds (“obligations Relance”) will ensure – for eligible companies and until 30 June 2022 – that there is a smooth transition to the ending of Covid support measures for company financing
Rapidly spreading wave of optimism 5/31/2021
The Pulse for May shows that the economy is slowly recovering from the sharp downturn caused by the coronavirus pandemic. Unlike in previous months, the recovery is no longer limited to manufacturing and construction, but is now broadening to services.
France: start of the recovery and crisis exit strategy 5/21/2021
At the same time as France’s economic recovery is taking shape, the government is also developing its crisis exit strategy, i.e. the way in which the safety net of emergency measures will be gradually withdrawn as the recovery progresses. This will be a tricky task.
France: ECB rate has less of an impact on the remuneration of NFC sight accounts 5/19/2021
Having been rising for several years now, non-financial company (NFC) sight deposits have been boosted to new record levels in the euro area under the influence of the health crisis and government measures to support company financing. Their outstanding amount reached EUR 2,591 bn for the euro area as a whole in March 2021 (of which 26% in France, 23% in Germany, 14% in Italy and 11% in Spain). Meanwhile, and in keeping with the decrease in deposit facility rate by the ECB, the average return on these deposits continued to decline until 2017, to a greater or lesser extent depending on the country, before stabilizing in the recent period - except in Germany where banks pass more negative rates on to their large corporates and private clients, especially since the further lowering of deposit facility rate from -0.40% to -0.50% in September 2019. In France, the average interest on sight deposits remains positive and significantly higher than in other euro area countries.
April’s lockdown had a mildly negative impact on overall economic activity 5/17/2021
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.
Recovery in France: slowed before it started? 5/12/2021
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. Procurement issues were also highlighted by the Banque de France in its economic update on 10 May. They were mentioned by slightly over a quarter of companies in the industry and construction sectors, although it is noteworthy to add that they have not so far affected these companies’ own prospects of an improvement in activity levels. This is reassuring and  suggests that if these difficulties do hold back the recovery, the effect will be moderate. This said, a rapid easing of the supply side difficulties will be needed. For those relating to health protection measures, this will come from the lifting of lockdown measures. For the problems in procurement and recruitment the way out is less clear.
The French labour market: outlook for 2021 5/10/2021
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. There is also the question of the profile of the increase in the jobless rate in 2021. Will it be a continuous increase or a bell-shaped curve? The most likely scenario is the first one, with a sharper increase in the first half that eases in the second half. The French labour market is unlikely to return to good health in 2021 (as defined by the government in its unemployment insurance reform), but the year 2022 seems like a more realistic horizon.
Taking a step back before the great rebound 5/3/2021
The German statistical office Destatis estimates that economic activity shrank by 1.7% in Q1 2021 after robust growth in the second half of 2020 (8.5% in Q3 and 0.5% in Q4). This was largely due to the tightening of the Corona restrictions in mid-December, which has been a drag on private consumption.
French companies went into the pandemic in a strengthened financial position 4/28/2021
Given the way outstanding amounts of equity and debt are valued[1] in national financial accounts[2], debt ratios calculated using these figures can give a distorted picture of the financial structure of non-financial companies. In contrast, capital increases and self-financing give a reliable approximation of changes in company capital. Our calculations suggest that French companies went into the pandemic in a strengthened financial position. Thus, the unprecedented increase in financial debt in 2020 (EUR 206 billion, with nearly EUR 130 billion in the form of government-guaranteed loans) was preceded, between 2015 and 2018, by a marked rise in capital, as the result of a significant increase in equity issues. However, these aggregate trends hide different pictures when individual companies, differing company sizes and different sectors are considered. [1] The value of unlisted shares and other equity is estimated on the basis of the listed shares multiple. Regarding debt components, only debt securities are at market value. [2] The national financial accounts elaborated by the Banque de France describe the financial assets acquisitions and the financing behaviours of the different institutional sectors, according to their respective financing capacity or their financing requirement.

ABOUT US Three teams of economists (OECD countries research, emerging economies and country risk, banking economics) make up BNP Paribas Economic Research Department.
This website presents their analyses.
The website contains 2730 articles and 721 videos