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Can the French economy bounce back?

► “Vaccination will be the key factor for growth”

Ludovic Subran, chief economist of Allianz and Euler Hermes.

“Over the year 2021, it is epidemiological uncertainty that will punctuate economic activity. In the first semester, everything will depend on the number of new cases, the extent of the restrictions and, above all, the vaccination rate. This crisis is indeed particular because its effects depend for half on health policy, the rest being a clever mix of household and business resilience, and strong economic policy choices. Everything must therefore be done to limit this pandemic over time, which is why vaccination is the keystone of the economic recovery.

→ ANALYSIS. Covid-19: massively vaccinate, the uncertain challenge of the Élysée

What happens in health will therefore very largely determine the health of the economy. The good news is that in France the curfew seems to slow the progression of the epidemic. By avoiding re-containment, we avoid recession, it’s mechanical.

Above all, we must do everything to speed up the vaccination. According to our calculations, each one week delay in vaccination in France costs the economy 3 billion euros: two billion to finance support measures for sectors that must remain closed and one billion due to the prevention of consumption .

Consumption is also essential this year. We must not forget that it represents 53% of GDP and could explain 70% of growth in 2021. However, the French have accumulated at least 85 billion euros in additional savings over the past year and they continue to increase their precautionary savings. If the situation improves, we estimate that households could draw 20 billion of these savings to fuel consumption. The recovery in consumption will be a determining factor in exceeding 5% growth this year.

Other elements suggest that a rebound is possible, especially on the business side. This crisis is Darwinian, with sectors very affected (catering, tourism, culture), while others will resist much better. For companies in industry or construction, the situation is not so bad. Their cash flow is good, the export outlets lost during the pandemic will reopen. We can therefore hope that the machine picks up quite strongly from the second quarter and especially in the second half.

→ READ. In 2020, the loan holding rate down among French households

Finally, we must not forget the importance of public aid, which plays a stabilizing role. In France, we will certainly remain around an 8 or 9% deficit in 2021. Of course, there are questions that arise about the effectiveness of targeting aid and the quality of support. But in the short term, these aids play their role: to vaccinate the economy against the risk of relapse, and allow us to start again quickly. By looking at all these factors, we can therefore show reasoned optimism for 2021. “

► “The government seeks to spread the effects of the shock”

Bruno De Moura Fernandes, economist specializing in Western Europe at Coface and lecturer in public economics at Sciences-Po.

“In 2020, France limited the breakage. We found new markets despite the savings trend of the French and continued to produce in this difficult situation by reviving a little with our exports, to Asia in particular. Our country still has the necessary resources to restart when the health situation improves. The rebound of the economy depends on it.

We anticipate an improvement in the second quarter and a continuation of this improvement in the third and fourth quarters, in line with the positive evolution of the health situation. Our doubt as to the expected rebound relates to how long the economy will remain in an artificial coma and how it will wake up.

So far, the government’s success has been characterized by a slight increase in unemployment and fewer business failures (-38% compared to 2019). The economic fabric is still very well preserved. Public aid made it possible to absorb the shock. The government’s goal is now to spread out its effects to allow the recovery.

→ EXPLANATION. Covid-19: How companies have used state aid

Aid should not be disconnected too quickly and partial unemployment should be extended in targeted sectors. Alain Griset, Minister responsible for small and medium-sized enterprises, explained it in a recent interview: we must not break the recovery of companies by keeping them above their heads the sword of Damocles for the repayment of loans guaranteed by the State (PGE). The government intends to postpone the maturity of this debt by two years, to 2028, to reduce their charges and not slow down their recovery. The repayment capacity of EMPs depends on it.

For social security contributions and corporate taxation, the government plans to do it on a case-by-case basis so as not to drop too soon those who need it most. Most of the ingredients seem to be there for a rebound in activity when the situation is a little clearer.

For the moment, few companies are in default. Certain sectors of activity have not yet returned to normal. They therefore do not need to use their cash to produce. But when this need reappears, these companies will need to finance working capital, which finances their current needs, which involves a significant risk.

At one point or another, we will have to return to a normal situation in terms of private financing, which takes into account the risks. 6% of VSEs and SMEs fear they will not be able to repay their EMP. And, according to our calculations, 26,000 additional companies should have entered into default in 2020. They will automatically have difficulty finding other financing from private players. “


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