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Economic Study 5/13/2020

France: a case of the deep blues

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Bruno Cavalier
Chief Economist at ODDO BHF

Two months ago, the French economy took a dive. Almost overnight, production was cut by 35%, as was household consumption. The ascent to the surface began on 11 May, but before reaching the surface, it will be necessary to go through many decompression stages. This is an uncertain operation that depends in part on how the pandemic evolves (risk of a second wave). The productive system and the income of economic agents will remain under pressure (risk of bankruptcies). The economic, political and social situation at the beginning of this new phase is reviewed in the present document.

The fortnight’s focus

On 17 March, a healthcare emergency forced France to close schools, creches, restaurants, museums, libraries, places of worship, cinemas, beaches, parks and retail outlets apart from those providing essential goods and services; travel (with a few rare exceptions) and any gatherings of over 10 people were banned, and the provision of public transport means sharply reduced. According to the synthetic index calculated by Oxford University, the lockdown was very severe in France, at 92 points on a scale of up to 100. This is similar to the stringency observed in Italy and Spain but much more severe than in Germany, other European countries or the US (chart lhs). Compared to the initial situation, production has fallen by 35% on average, and by almost 50% when only the market sectors are taken into account. There are significant differences between sectors. The introduction of health protection measures has made it possible to reopen certain industrial facilities and construction sites, leading to a slight improvement in the sectors concerned in recent weeks (chart rhs). However, the overall situation has changed little in two months.

The 11 May marks the start of the lifting of lockdown measures1. Almost all restrictions are maintained in most areas of social life. Transport provision is slightly increased. The reopening of schools is only partial, concentrating on creches and primary schools, but in practice the constraints on organising the return of children to school are such that the resumption of on-site education will be minimal (which hinders the return to normal for the activity of millions of parents). Travel restrictions are being eased.

The French economy will not be suddenly be reopening. The lockdown and the lifting of lockdown measures are not symmetrical shocks: one sudden the other gradual. The sectors remaining subject to almost total lockdown measures during this first phase (up to and including 1 June) represent 5% of GDP. This is the case in the hotel and catering sector and, by extension, tourism activities. For other sectors, even though the shock will not be entirely wiped out, it is clear that the easing of restrictions will lead to a marked rebound in the pace of activity and spending, as we have observed in other countries (China) or in other circumstances (the reopening of an economy after a natural catastrophe). In most cases, the magnitude of the rebound will be proportionate to the decline that preceded it.

1 The plan divides the French territory into two zones, "red" and "green", depending on whether the epidemic risk is deemed high or low in light of three criteria: active circulation of the virus, hospital intensive care capacity and the rate of coverage of testing needs. The entire north-eastern quarter of the country (including Paris) is classified as a red zone, which means that many restrictions must be maintained, in particular the closure of secondary schools.

 

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