eco TV Week

France: economy has the wind of optimism in its sails

6/18/2021

The economic indicators available at this mid-point of the year suggest that the French economy is bouncing back strongly as it comes out of its third lockdown. Granted, there are a few negative numbers in the mix. But these are economic activity data from April, most of which still bear the traces of lockdown.

Hélène BAUDCHON

TRANSCRIPT // France: economy has the wind of optimism in its sails : June 2021

The economic indicators available at this mid-point of the year suggest that the French economy is bouncing back strongly as it comes out of its third lockdown. Granted, there are a few negative numbers in the mix. But these are economic activity data from April, most of which still bear the traces of lockdown.

There is also the downgrading of the GDP growth figure for the first quarter (from 0.4% q/q on the initial estimate to -0.1% in the detailed figures). However, this negative print is offset by the upward revision of private payrolls gains (from 0.3% to 0.5%). Employment is therefore continuing to provide positive surprises, which is excellent news.

Meanwhile, prospects for the second quarter have improved. Even in April, and despite the lockdown, business confidence surveys surprised positively (by rising, in the case of the composite PMI from Markit, and barely dipping for the INSEE composite index, thanks in particular to a strong showing from industry).

In May, they returned improvements on an impressive scale, especially in services, driven by expectations of better times to come even though lockdown measures had only been partially lifted. Both the INSEE index and the PMI have returned to well above pre-crisis levels, even flirting with the highs of early 2018, which represent the cyclical peak reached by these surveys.

The return of confidence has been less impressive amongst consumers. But the reduction, since the beginning of the year, in their fears about unemployment trends is significant and worth highlighting. And the Banque de France retail sector survey, together with real-time data, suggests a sharp rally in consumer spending in May.

These different signs of improvement translate into a reduction in the GDP loss, relative to its pre-crisis level, that the central bank estimates at 6% in April, 4% in May and 3% in June. GDP growth in the second quarter is likely to be around 0.5% q/q before a much stronger rebound in the second half, taking the average for the year to around 6%. This forecast is a quarter point higher than in March and a good point or so higher than the Eurozone average.

The flip side of the coin is that, with a vigorous upturn in global demand, supply, which is less responsive, has come under pressure. The resulting supply constraints, rising input prices, and hiring difficulties are all sticking points that will need to be watched as they could slow the recovery in France. For the time being, however, the positives are largely winning out and encourage optimism. Thank you for watching, and we hope to see you next week for a new edition of EcoTV Week.

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