Perspectives

Light at the end of the tunnel

st  
Eco Perspectives // 1 quarter 2021  
economic-research.bnpparibas.com  
1
2
FRANCE  
LIGHT AT THE END OF THE TUNNEL  
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. The first positive effects of the France Relance plan should also underpin  
growth, possibly taking GDP back to its pre-crisis level in 2022.  
THE Q3 REBOUND IN DETAIL  
GROWTH AND INFLATION (%)  
According to INSEE’s second estimate, French GDP grew 18.7% q/q in  
Q3, a rebound as spectacular as the collapse that preceded it (-19% in  
GDP Growth  
Inflation  
0.5  
H1 2020), and revised upward from the first estimate of 18.2%. France’s  
Q3 rebound was the second-largest in the eurozone, behind Ireland  
with 21.4%. However, it was not enough to make up all the lost ground,  
and GDP remains 3.7% below its end-2019 level. On the one hand, this  
is a fairly small margin given the depths to which the economy sank in  
H1, but on the other it is still a significant shortfall, and recouping the  
last few percent will be a harder and slower process than the initial  
recovery, which was more of an automatic rebound from a low base.  
Forecast  
Forecast  
8
6
6.3  
3
.8  
4
1
.5  
1.3  
1.2  
2
0.6  
0
-2  
-4  
-
-
6
8
All GDP components surged in Q3, although the rebound was held back  
by a large negative contribution of the change in inventories. Changes  
in business investment and consumer spending are worth noting in  
particular. Business investment fell by 21% in H1, before rising by the  
same proportion in Q3, similar to the movements in GDP whereas  
variations in investment are usually much larger. This time, the  
contraction was not made worse through the channels of expectations,  
deterioration in the business climate, increased uncertainty or the  
financial accelerator. INSEE’s quarterly survey of investment in the  
manufacturing sector also shows this relative resilience: the expected  
-
-
10  
12  
-9.5  
2019  
2020  
2021  
2022  
2019  
2020  
2021  
2022  
CHART 1  
SOURCE: BNP PARIBAS GLOBAL MARKETS  
ILLUSTRATION OF THE W-SHAPE SCENARIO  
1
10  
00  
1
4% drop in 2020 is less than the 22% decrease seen in 2009. This  
Q4 2019 = 100  
=
=> BNP Paribas forecasts (Nov. 2020)  
illustrates the fundamentally different nature of the two crises and  
the fact that financial constraints are less severe today, because of the  
huge fiscal and monetary support provided since the spring.  
1
Consumer spending and public-sector consumption were the GDP  
components that rebounded most in Q3: the latter ended the quar-  
ter back at its pre-crisis level while the former ended it 1.6% below,  
whereas investment was 5% lower and exports 15% lower. Consumer  
spending on goods rose 1% above its pre-crisis level, but spending  
on services remained 5% lower. As regards the upturn in spending on  
goods, we could see the glass as half-empty or half-full. On the one  
hand, we could be disappointed that it exceeded its pre-crisis level by  
only 1%, despite being less hampered by public health restrictions than  
spending on services. On the other hand, given the circumstances, we  
might be impressed by the fact that it rose above its pre-crisis level at  
all. The sharp fall in the household saving ratio in Q3, to 16.5% of gross  
disposable income, supports a positive reading of consumer spending  
figures. After jumping by 11.6 points in H1 2020, the savings rate fell by  
almost as much in Q3 (-10.2 points): the flow of forced savings, built up  
during the first lockdown, seems to have largely deflated.  
9
8
7
0
0
0
GDP  
Household consumption  
Total investment  
Exports  
CHART 2  
SOURCE: INSEE, BNP PARIBAS  
with public health constraints and uncertainties. The second lockdown,  
which began on 30 October as a way of tackling the second wave of  
infections, means that the question now is not how much growth will  
slow, but how large the contraction will be. The risk of a W-shaped  
THE RISK OF A W-SHAPED RECOVERY HAS MATERIALISED recovery has therefore materialised (see chart 2). However, the second  
V should be less pronounced than the first:  
The Q3 rebound was mainly an automatic response to the previous  
slump. Weknewthatitwouldbefollowedbyweakergrowthascatching-  
up effects faded, and because of ongoing large sector disparities along  
The contraction in Q4 2020 should be smaller because the second  
lockdown has been less stringent than the first, the sector  
The bank  
for a changing  
world  
st  
Eco Perspectives // 1 quarter 2021  
economic-research.bnpparibas.com  
1
3
impact has been more concentrated (see chart 3), businesses and  
consumers have adapted, and the international environment is  
less gloomy. Business-climate and consumer-confidence survey  
results fell sharply in October and November, but much less than  
SMALLER SECTOR IMPACT OF THE SECOND LOCKDOWN  
LOSS OF ACTIVITY BY SECTOR COMPARED TO Q4 2019, % DIFFERENCE  
Total  
Trade  
0
Agriculture  
Food industry  
Transportation and  
warehousing  
1
in March and April . One particular negative aspect of the Q4  
-20  
lockdown is the fall in consumer spending, which is expected to be  
slightly greater than the fall in GDP, whereas it was smaller in Q2.  
-40  
-60  
-80  
Accommodation and catering  
Coking and refining  
As regards the rebound in early 2021, the lockdown is being  
eased only gradually and restrictions are being kept in place; the  
economy remains weakened by the first lockdown; public health  
constraints and uncertainties remain, as do sector disparities; and  
economic concerns (Brexit, faltering US growth) are continuing to  
cast a shadow.  
Information and  
communication  
Electrical, electronic and  
computer equipment goods  
-100  
Financial activities  
Transport equipment  
Real estate activities  
Other industrial branches  
The extent of the Q4 decline in GDP remains unclear. INSEE and the  
Banque de France estimate that the economy was running at 96% of  
its normal rate in October and 88% in November (as opposed to 71%  
in April 2020). With the second lockdown continuing into December,  
although it has been eased, that percentage should rise, but the  
question is how far? Our forecast of a 5% quarterly drop in GDP (made  
before lockdown-easing measures were announced on 24 November)  
is based on the rate rising back to 90%. That assumption, and therefore  
our projected fall in GDP (in Q4 and in 2020 as a whole) could prove  
overly pessimistic. In its Economic Outlook of 2 December, INSEE  
estimated the rate at 92% and forecast a 4.4% contraction in GDP in  
Q4 and 9.1% in 2020.  
Business services  
Other services activities  
Energy, water, waste  
Construction  
Non-market services  
Forecast for Apr. 2020  
Forecast for Nov. 2020  
Forecast for Dec. 2020  
CHART 3  
SOURCE: INSEE, BNP PARIBAS  
FRENCH GDP BACK TO ITS PRE-CISIS LEVEL  
BUT NOT ON ITS PRE-CRISIS TRAJECTORY  
1
05  
Q4 2019 = 100  
1
00  
HOPES AND CHALLENGES FOR 2021 AND 2022  
9
5
0
The economy should recover gradually but significantly from early  
2
021. The upturn will be gradual because of the reasons mentioned  
9
above regarding Q1, but also because of the sector characteristics of  
the French economy: it is highly dependent on market services, which  
=
=> BNP Paribas forecasts (Nov. 2020)  
GDP  
2
85  
are being hit harder by Covid-19 than manufacturing, and for longer .  
Pre-crisis trajectory  
The aftermath of the huge recessionary shock in 2020, the extent of  
which is currently unknown, will also hamper the recovery: business  
failures, higher unemployment, higher debt ratios and weaker produc-  
tivity growth. However, we expect growth to be 6.3% in 2021, which  
is a significant rebound. That figure, and our 3.8% growth forecast for  
80  
CHART 4  
SOURCE: INSEE, BNP PARIBAS  
2
022, are higher than consensus and institutional forecasts. For 2021,  
we even see the balance of risks being on the upside, whereas it will  
be neutral in 2022.  
The Covid-19 situation also matters. The development of vaccines and  
Growth should be supported by activity levels continuing to return to the large-scale roll-out starting in 2021, in France and elsewhere in  
normal, but also by the shock-absorbing effects of emergency measures the world, are a real source of hope. They are enabling people to see  
and the first positive effects of the France Relance plan, particularly on the light at the end of the tunnel and will smooth the growth profile,  
investment. There is also potential for a rebound in consumer spen- reducing the risk of an ongoing stop-and-go recovery. The gradual de-  
ding because of the amount of savings built up during the crisis. Those crease in Covid-19 risks, related health constraints and uncertainties  
accumulated savings are generally in liquid form, and so are readily should have a positive impact on expectations and spending behaviour.  
available to be spent. However, they are also concentrated among high However, there seems to be a high level of distrust among the French  
earners, which may actually prevent a strong rebound in consumer people regarding vaccines, and this represents a significant downside  
spending, since wealthier people spend more on travel, entertainment risk.  
and other leisure activities, which are more prone to Covid-19 restric-  
The road to recovery will be long, but a return to normal – with GDP  
tions. There is also the risk of this money being converted into pre-  
returning to its pre-crisis level and the economy back running at 100%  
cautionary savings. This will depend on confidence levels. It will also  
of its normal level – by 2022 seems achievable. However, GDP would  
depend on the situation in the labour market, which will be subdued  
still remain well below its pre-crisis trajectory (see chart 4), and is  
at best. We expect both employment and the unemployment rate to  
unlikely ever to close the gap, meaning that Covid-19 will constitute a  
rise, although the size of the increase is uncertain. The upturn in em-  
permanent negative shock.  
ployment could be small while we fear a sharp rise in unemployment.  
Completed on 8 December 2020  
1
2
Consumer confidence barely rose between the two lockdowns, so the renewed decline has taken it to its lowest level since December 2018.  
The most exposed sectors (transport equipment, retail, transport services, accommodation and food service, and other recreational services) account for 22% of value added and 29% of jobs.  
The bank  
for a changing  
world  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
Ce site présente leurs analyses.
Le site contient 2682 articles et 705 vidéos