Covid crisis in France: historic fall in GDP is confirmed, savings at their highest

Gross domestic product fell by 13.8% in the second quarter of 2020 due to the confinement which led the French to save heavily, to the detriment of consumption which is struggling to get off on a good foot despite the optimistic messages of the government.

The National Institute of Statistics and Economic Studies (Insee) confirmed on Friday this unprecedented collapse since 1949, when it began to measure French economic activity on a quarterly basis.

Even after the fall of Lehman Brothers in 2008-2009 or the general strike of May 1968, the fall had not been so brutal. After a decline in GDP of 5.9% between January and March, France therefore officially entered recession at the end of the first half of the year.

Lead by tourism and aeronautics

Because confinement there has been stricter and because of the sectoral specialization of the economy around tourism and aeronautics, France is doing less well than the whole of the euro zone (-12.1%) and a fortiori than Germany, where the decline in GDP is limited to 10.1%. But Spain suffered a decline of 18.5% and the United Kingdom 20.4%.

Although the gradual lifting of restrictions led to "a gradual recovery in economic activity in May and then June, after the low point reached in April", the quarter bears the scars of the obligation imposed on the French to stay. at home: consumer spending fell 11.5%.

After having jumped at the end of confinement (+ 35.5% in May and + 10.3% in June), household purchases stabilized in July (+ 0.5%), with a premium for consumption of fuels, up sharply, to the detriment of spending on clothing and textiles, which is growing more slowly.

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Household consumption is thus “almost” back to its November 2019 level, according to INSEE, but “we have not had any real catching up, in the sense that we continue to accumulate losses”, according to Mathieu Plane, deputy director of the Analysis and Forecasting Department of the OFCE. Therefore, “we cannot speak of a recovery, but of a simple rebound” of activity.

This reluctance to spend, while income has been preserved by partial unemployment measures, is measured by the swelling of savings, the rate of which increased by 12 points to stand at 27.4% in the second quarter. By the end of the year, the French should have set aside close to 100 billion euros, "Covid savings" already amounting to 80 billion at the end of July, according to the Banque de France.

"Precautionary savings"

"It is a precautionary saving which is linked to mistrust and fear", commented President Emmanuel Macron in front of the presidential press association in Paris.

The recovery plan of 100 billion euros, the content of which will be unveiled Thursday, "will have to put back into the circuit this excessive savings by reassuring employment", judge Philippe Waechter, chief economist at Ostrum Asset Management.

This week, the Minister of the Economy Bruno Le Maire confirmed the government's forecast of a GDP contraction of 11% this year, while INSEE expects -9%. This prudence is explained in particular by "a lot of international uncertainties", he justified, citing Brexit, the American presidential election and the future Chinese five-year plan.

In the longer term, GDP should not return to its pre-crisis level until 2022, where growth of 1.4% is expected by the government.