How big a blow is France’s second lockdown?

by: Aline Schuiling

Euro Macro: The damage to France’s economy from new lockdowns – The French central bank (Banque de France) published a first estimate of the economic impact of the new lockdown measures on 9 November (here, only in French). In its highly regarded monthly economic survey (held between 28 October and 4 November), companies assessed the impact of the curfew that was announced in Paris and eight other metropolises in Mid-October, and the impact of  the second nationwide lockdown that started on 30 October and will last until at least 1 December. When comparing the current lockdown measures with the first ones in March-April, an important difference is that this time people will be allowed to leave their homes to go to work while schools and creches remain open, which also enables more people to go to work. Similar to the first period of lockdown, all non-essential shops need to be closed.

The results of the survey show that companies in the manufacturing sector (share in GDP of around 14%) reported that their activity levels had remained unchanged between October and September, at 91% of the ‘normal’ level during those two months. However, in November, they on average expected activity to decline to 89%. This is a much more modest decline than during the first lockdown period, when manufacturing activity fell to a little above 50% of the normal level. In the commercial services sector (share in GDP almost 60%) companies reported a much sharper drop in activity as a result of the curfew in October and also expect the lockdown measures in November to give a serious blow to activity. On aggregate they reported a decline in activity from 89% of the ‘normal’ level in September to 87% in October and expect to see a further drop to 76% in November. Similar to the manufacturing sector, the level of activity had dropped to close to 50% of the normal level during the first lockdown. Within services, large differences can be spotted between, for instance, hotels and restaurants (expected drop in activity to 17% and 9% of the normal levels in November from 47% and 62% in October, respectively) and, for instance, information services (expected level of activity stable at 97% in November).

When translated into the levels of GDP, the Banque de France estimates that GDP was around 4% below its ‘normal’ pre-pandemic level in October, down from -3.5% in September. In November, it expects the loss of GDP to be around 12%, which is much more moderate than the drop to 31% that was recorded in April. According to the Banque de France its estimates are supported by the high-frequency data that it observes, including mobility data. When we translate the results of the Banque de France survey into quarterly GDP growth numbers, the loss in activity in October and November, suggests that GDP will contract by around 4.5 to 5% qoq in Q4 (following +18.2% qoq in Q3), when assuming that the current lockdown measures are not eased in December. However, if some of the current lockdown measures were eased, for instance by allowing activity in December to rise from 12% below normal to around 8% below normal, the drop in France’s GDP in Q4 will be around 3.5% qoq.

The observations of the Banque de France seem to suggest that France’s GDP will contract more sharply than the eurozone aggregate in Q4, as explained in our Global Daily Insights of 5 November (here). (Aline Schuiling