The update of the French GDP evolution during the 2020 1st quarter, to which INSEE has just achieved wouldn’t lead into mistakes. The first estimation did show a GDP fall by 5.8%. The new one gives a 5.3% reduction. The gap between the two publications is much larger than what we usually see; i.e. rarely more than one or two deciles. But it reveals more the difficulties to grasp the figures of an event without any precedent than a less serious admission of the consequences of the corona virus outbreak on the French economy. In its new publication, all the components of the national demand are slightly revised upward, household consumption (-5.6% instead of – 6.1%) and investment (-10.5% instead of -11.8%). Foreign exchanges contribution is neutral, instead of weighting on growth by -0.2% and the impact of inventories variations is, to the opposite, revised down: 0.6% instead of 0.9%.
The observed recession is already huge when it only includes two weeks with lockdown and when behaviors have not really been affected before the moment when the outbreak was creating a threat for France and economic agents were taking conscience of it, i.e. at the beginning of March. So the activity fall resulting from it has been concentrated on one third of the quarter. Yet, the reaction has been brutal : the number of jobseekers has immediately soared with 243 000 new inscriptions at the Employment Office, the highest number in one month for near 25 years and the number of car registrations fell by 72%. As a total, household consumption of goods has fallen by 8 billion euro during this month.
All these trends amplified during the two following months, despite the lockdown end in the middle of May and the reduction of the restrictions regarding trips at the end of the month. No rebound signals have been perceived and the first figures published have been catastrophic. The number of jobseekers increased again, this time by 843 000 persons. Car registrations have continued their fall: -89% in April and again -50% in May when car dealers had reopened their stands in the middle of the month. The accumulation of unsold models is over passing 400 000 units. The activity related to transportation services or personal cares have been in a total stoppage during near two months and tourism will remain in that situation until July. Household consumption will remain at a very low level and employment will continue to worsen.
The new estimation of the government for the GDP evolution in 2020 shows an 11% fall instead of 8% previously announced. Massive public transfers decided since March in favor of enterprises with secured loans and the taking in charge part-time unemployment charges have not allowed supporting neither employment, nor household consumption. These ones have deposited on their saving accounts or on their banking accounts revenues or transfers they cannot use to spend due to the lockdown. During the 1st quarter, the household financial saving rate has reached the unprecedented level of 10.4% of their net available revenue. It was, as an average, during 2019, 4.5%. This trend will continue during the 2nd quarter and probably, a lot after. To the physical constraints which were weighting on expenses, a strong feeling of precaution will be added due to the unemployment increase.
The outbreak being on the way of being controlled and the physical constraints being progressively lifted, will the economy rebound during the coming months? Nothing is sure. The catching-up effect will be low because a large share of the activity fall is coming from services which, by definition, cannot be caught up. To the best, these sectors will recover their past activity level but the losses will have been definitive. Regarding goods purchases, as home equipments or cars, in theory, household which had to delay their acquisitions are today able to pursue their projects but the reality or even the fear of unemployment will incite them to wait.
The situation is not going to be better regarding enterprises. A failures wave is unavoidable despite public support and these which will have succeeded in going through these months with no or very poor activity will look for reconstituting their treasury and will likely postpone their investment projects. A recovery before the end of the year is unlikely and the major listed companies will do whatever they can to show the reconstitution of their financial situation and they will strictly limit their expenses, which will even more affect employment and investment.
France was showing before the outbreak two characteristics which have increased its vulnerability. There is first the high share of the services. Which has not been spent is definitely lost. Regarding tourism, it is an illusion to think that the situation will recover next summer. French people who will stay in their country will not compensate the high expected fall of foreign tourists. Regarding these who are coming from far off countries in Asia or in America, their coming back before the yearend is highly hypothetic. The second factor regards the situation of the French economy at the eve of the outbreak. The government can glorify itself for having reached in 2019 a 1.5% growth rate, above the average in the euro zone but it results from an arithmetic effect and the better growth at the beginning of the year had not last. During the 4th quarter, GDP had even slightly fallen. The contribution of foreign trade to growth had, once more, been negative and the objective, followed for years to reestablish enterprises competitiveness had not been reached. It is unlikely that, in the coming months, it will be different, in the recession context our trade partners are confronted with.
The massive support brought by the State, which is going to heavily weight on the public deficit and its indebtedness, was indispensable. But it couldn’t be forever and it will not be sufficient to guarantee the recovery of the French economy. To overpass that crisis and to get out from the recession, the State must renounce to two paradigms which, until now, have inspired its action. The first one is well known. The purpose was to give the priority to the supply. Without any counterparts and, especially without that this support was focused. Now, the State must focus its action and redirect the saved transfers toward demand. The second one is more discerning. It is about the permanent confusion between several objectives which has the consequence that none of them is really fulfilled. The economic policy must abstain itself from politics. To mix actions inspired by ecological considerations and the indisputable economic rebound leads nowhere. To concentrate the support to car industry on electric vehicles nobody wants to buy is a good example of what it must not be done. To limit the supports to energetic renovation, useful in any cases, on these who have not the resources to launch works is leading to setbacks.
The French economy situation is more worrying that what is generally accepted. The ways to remedy to it must get out of the schemes which, already, were not giving substantial results when the world was in a good health.