France suffers record GDP plunge

France’s economy slumped a record 13.8% in the 2nd quarter as businesses bore the brunt of a strict coronavirus lockdown that slammed consumer spending, the INSEE statistics agency said on Friday, July 31.

The seasonally-adjusted drop in gross domestic product (GDP) from the 1st quarter was not as steep as many analysts had expected, but worse than the performance of most of France’s eurozone peers.

“GDP’s negative developments in 1st half of 2020 is linked to the shutdown of ‘non-essential’ activities in the context of the implementation of the lockdown between mid-March and the beginning of May,” the INSEE said in a statement.

The agency also revised the figure for the 1st quarter – when lockdowns just started to be implemented – to a 5.9% contraction from the 5.3% it had previously estimated.

The French economy has now shrunk for 3 consecutive quarters, a recession that analysts say is likely to persist even as spending begins to revive.

Household consumption, a main driver of the economy, tumbled 11% during the quarter.

“It’s still unclear how consumers are going to behave as unemployment rises in the coming months, and based on confidence surveys they seem eager to save,” said Julien Manceaux, an economist at ING bank.

France’s 2nd quarter contraction was much sharper than the record 10.1% fall in Germany, while Austria suffered a 10.7% decline and Belgium 12.2%.

Spain, however, recorded an 18.5% plunge in 2nd quarter GDP, reflecting one of the most stringent COVID-19 lockdowns in Europe which battered its key tourism industry.

France’s drop was better than the INSEE’s own forecast from mid-June of 17% and an analyst consensus established by Factset had called a 15.3% fall.

“While the catastrophic collapse in French Q2 GDP was hardly a shock given the country’s stringent lockdown, it still highlights the sheer extent of the economic damage wrought by the pandemic,” said Jessica Hinds at Capital Economics.

Not powerless

France’s investment spending sank by 17.8%, while the lockdown and travel restrictions decimated the transportation (-46%) and restaurant and hotel (-57%) sectors.

The INSEE noted that overall “the gradual ending of restrictions led to a gradual recovery of economic activity in May and June, after the low point reached in April.”

Household spending on goods in particular rebounded sharply in June thanks to pent-up demand, with spending 2.3% higher than in February, before the business closures and stay-at-home orders were imposed. 

The government has promised a 100-billion-euro ($118-billion) recovery plan of spending and investments, having already spent at least 460 billion euros to limit the social and economic devastation.

Many employees are being paid by the state to help limit outright layoffs by companies hit hardest by the lockdowns.

“We are not powerless in the face of the crisis,” Finance Minister Bruno Le Maire said after the figures were released.

“We are going to fight to do better than the -11%” hit to GPD forecast for the full year, he added. – Rappler.com