The Prime minister has just delivered his rebound plan details for the French economy to cope with the deep recession caused by the corona virus outbreak. He had delayed this presentation by a week in order to avoid to interfering with the announcement of the new sanitary measures decided due to the rise of the number of people affected by the virus during summer. That presentation also follows the publication of the detailed figures of French GDP for the 2nd quarter, issued August 28th. The rebound plan focused itself on its amount, 100 billion euro and on precise actions. But it is hazy regarding the agenda of its execution. Employment forecasts, with 170 000 job creations, are announced but they seem very weak if we look at the increase, near one million, of unemployed people, a situation which will be clarified soon, with the publication by INSEE of the 2nd quarter statistics.
The French economy with a 13.8% GDP fall during the 2nd quarter after a 5.9% one during the 1st quarter, endures a recession twice deeper than Germany which is expecting a 5.8% fall of its GDP in 2020. Comparison is also unfavorable with European Union and OECD countries average. Among the major world economies, only the U.K. is not doing better, but this one is confronted to the Brexit challenge. In France, during the 2nd quarter, consumption sank by 16%, investment by 22% and exports by 25%. The situation has been made worse by the negative contribution to the GDP (-2.8%) of foreign exchanges, despite the oil prices fall, a phenomenon rarely mentioned but which testifies, if it was necessary, of the failure of the policies having as an objective to improve the competitiveness of French companies.
Household behavior has been very revealing of the economic consequences of the outbreak and of the sanitary measures which have been taken to remedy to it. Compared to the gross available revenue, their financial saving rate went from 4.5%, an average these last years, to 10.5% during the 1st quarter and to 19.5% during the 2nd quarter. It is almost 100 billion euro which has not been spent, which, obviously, has heavily weight on very numerous sectors of the economy. It could have been expected that the end of the confinement in the middle of May was going to generate, even if it was not a return to normal, at least an inflexion of behaviors. It has not been the case, to the contrary. This psychological aspect of the crisis should be taken into consideration if we want a rebound of the economy. But it is absent in the government announcements which more frequently put the accent on the risks of a “second wave” than on the indisputable progresses, it is enough to look at the evolution of the mortality, obtained to contain the outbreak.
The liquidities accumulation by household and the small diminution of their available revenue (-3%) in front of the brutal degradation of the enterprises financial situation, which has required the issuance of a very large volumes of loans guaranteed by the State, has incited the government to choose, as a rebound tool, a supply side policy, based on taxes reductions or on direct transfers in favor of enterprises instead of a policy supporting demand in favor of public investments or household. These ones have enough resources to spend but they are criticized because their expenditures could profit more to imports than to national production and to employment. To justify this choice in favor of supply side policies, the consequences of the 1981 rebound plan are frequently quoted.
Time has come to put a final end to this legend. The increase of the foreign trade deficit observed in 1981 and in 1982 had for unique cause the increase of the oil bill, which was resulting from the massive rise of the dollar, the currency in which the oil was quoted. The interest rates increases, which reached 20% in 1981, decided by Paul Volker at the end of 1979 to fight against inflation, generated a dollar rally. It jumped, in a few years, from 6 to 10 francs. French exports were not affected by the rebound policy since their growth remained even much higher than the household consumption one which had been stimulated by the economic policy decided at that time. It is easy to check these indisputable points in INSEE statistics and in the official data basis Pegase for energy numbers.
The 100 billion Castex plan which has chosen to favor enterprises, is still hazy regarding the agenda of its execution. One third of the plan is dedicated to enterprises competitiveness but the main line, tax reductions, for an amount of 20 billion, is split on two years. The remaining lines are about targeted projects whose some of them, as for instance culture, are only focused, through subventions, to avoid establishments disappearance, and not to increase their activity. The supports offered to strategic sectors to regain industrial and technological sovereignty, in fact highly justified, will need much more time to be put in place. On the long term, they will have a positive impact but they will have very few effects on 2021 overall economic situation, especially since it will be necessary to wait the vote of the 2021 finance bill to start to put them into operation.
The second part of the plan is dedicated to social and territorial cohesion. The main point consists in the renewal of the social transfers and the financing by the State of the expenditures, related to the outbreak, of the Social Security systems and of the part-time unemployment. So they are financial transfers between public institutions and not new expenditures. Another point concerns the compensation in favor of local authorities of the reduction of production taxes. But these ones have already been included in the “enterprises” part of the plan. Only the measures in favor of research and young training are real new expenditures, able to be put in place as soon as in 2021 but they represent only one third of this part of the plan.
The third part of the plan is about ecological transition. It is more a program than a list of expenditures with a short-term impact. The supports in favor of SNCF to modernize its network will be spent during several years and, until now the unsuitability of the system dedicated to incite homes thermal isolation has caused the loss of most of its efficiency. The proposed abrogation in the plan of the revenues conditions to have access to these subventions is going in the good direction and effectively, could quickly lead to an increase of the activity in the building sector which will be confronted in 2021 to the reduction of housing resulting from the fall of permits authorization (-10% during 2020 1st semester). To the opposite, the impact of the announcements regarding hydrogen, which should not displease Nicolas Hulot, or electric vehicles, due to the technological uncertainties or to the hesitations of the consumers will be, in the near future, much more limited than in the announced figures.
At the end, effective new expenditures in 2021 wouldn’t overpass one third of these announced 100 billion, which is consistent with a very low announced impact on employment and with the tough budget deficit reduction for next year (5.5% of GDP instead of 11% in 2020). It is why the government plan, in reality, has more in common with the program of the President of the Republic for the coming presidential election than with a vigorous action in favor of an economic rebound.