French economy set for two-year recovery
France’s economy will not rebound to pre-coronavirus levels until 2022 as it continues to suffer its worst post-war recession, the central bank said this morning.
The Eurozone’s second largest economy is set to contract 10.3 per cent this year, the Bank of France said. However, it will begin to return to health next year, with the bank expecting growth of 6.9 per cent in 2021 and 3.9 per cent in 2022.
Almost 1m jobs are likely to be lost in France this year as a direct result of the pandemic, sharpening concerns that unemployment could hit an all-time high of 11.8 per cent in the first half of 2021.
France has rolled out a “temporary employment” scheme — similar to chancellor Rishi Sunak’s job retention scheme in the UK — to avoid mass lay-offs as a result of the coronavirus crisis.
The country’s labour minister Muriel Pénicaud yesterday announced the scheme will be extended, and will now last up to two years, in line with the central bank’s forecasts for the time it will take for the French economy to recover.
The scheme currently covers 84 to 100 per cent of net salary for the lower paid, but it is unclear what share of wages the French government will continue to pay.
However, it comes as a huge cost for the country, with France’s public sector deficit is set to rise to 11.4 per cent of GDP this year from 3 per cent in 2019.
The central bank retained hopes that the glib economic outlook might be brightened if the virus is brought under control sooner than expected, but warned that a second wave of infections later in the year could plunge France’s economy into a 16 per cent downturn this year.
France was one of the first European nations to enforce a strict lockdown, with President Emmanuel Macron effectively shutting down large portion of the economy ordering the closure of businesses.
Restrictions in the country started to ease on 11 May, with citizens now allowed to return to outdoor cafes after Jean-Francois Delfraissy, head of the country’s scientific council, last week declared the virus “under control”.
But almost three months of lockdown in the country carried its toll, with the Bank of France estimating an economic slump of 15 per cent in the second quarter.
Business surveys have suggested activity could welcome slight gains and return to less than 12 per cent of normal months this month.