eco TV Week

France: slightly brighter skies in May


According to May business confidence surveys, France’s economic horizon has cleared up a bit.


TRANSCRIPT // France: slightly brighter skies in May : May 2020

According to May business confidence surveys, France’s economic horizon has cleared up a bit. Markit PMI surveys gave the most positive signal: the composite PMI rose 19 points. The INSEE surveys also showed an improvement, but it was not quite as strong: the INSEE index was up 6 points. As a reminder, these surveys plunged by 41 points and 52 points, respectively, in March-April. Business confidence has therefore regained a little of the ground lost during the lockdown.

The limited improvement in the INSEE index is due to the fact that the upturn has not spread to all sectors of activity. The biggest upturns were seen in services, followed by retailing and industry, but this improvement was offset by another deterioration in construction and the wholesale industry. Within the services sector, contrasting trends also hampered the rebound, due to the differentiated and progressive reopening of the economy after the lockdown: road haulage, information & communications, specialised scientific and technical activities and administrative and support services all picked up, while accommodation & food services and the real estate sector continued to decline.

Another important detail is the divergence of balances of opinions on past and future trends. Past trends continue to deteriorate sharply while expectations have picked up strongly. Although the latter is stronger, the overall improvement is still mild. Based on these factors, the business climate should pick up more strongly in June. In contrast, consumer confidence has yet to recover: the INSEE survey fell again in May, albeit less so than in April (down 2 points and 8 points, respectively). One positive trend was the sharp upturn in the proportion of households who think it is a good time to purchase big ticket items. 

One last encouraging news: the INSEE now estimates the instantaneous loss of activity due to the health crisis at 21%, compared to 33% in early May. This is a significant improvement but a relative one: the decline is only less important. Moreover, this a gradual business “recovery” that is taking shape. Considering also the very negative carry-over, Q2 GDP is expected to contract much more sharply than in Q1. The INSEE is estimating the quarterly decline at 20%. To conclude this emission of EcoTV Week on a hopeful note, let’s have in mind that in the third quarter, we should be able to talk about growth again, maybe even double-digit growth.

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