How France is trying to cushion the fall

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“This crisis, which affects the world economy and the real economy, is not comparable […] than the 1929 crisis. “ The Minister of the Economy, Bruno Le Maire, no longer hesitates to summon the specter of the Great Depression to prepare minds for the violence of the shock which is hitting the French economy. Manner of saying that much more than the financial crisis of 2008, the epidemic of coronavirus, which caused the shutdown of the country and the rest of the world, is similar to the earthquake which had overthrown the American and then European economies in the 1930s. An episode synonymous with prolonged recession and mass unemployment…

While the darkest forecasts are multiplying – the American bank Goldman Sachs mentioned on Thursday a fall of up to 9% of GDP in 2020 in the euro zone with a public deficit climbing to 7% in France -, INSEE has shed a first precious light on the state of the French economy on Thursday, ten days after the start of the confinement of the country. Enough to measure the extent of the impressive brake on activity caused by the health crisis.

Unpublished situation

The economy is only running at 65% of its usual capacity, estimates the statistics institute, for which the impact can be “Quite heterogeneous” by business sector: From -89% in construction, the most affected, to -4% in agriculture and the agrifood industry, passing by -52% in industry and -36% in market services . In the latter sector, certain branches continue to function almost correctly, such as telecoms, where others are extremely affected, far above these averages. This is particularly the case for tourism, hotels and catering and events, which are down “90% to 100%”, as Le Maire had already indicated.

With this loss of activity “Instant” by 35% compared to a normal period, energy consumption fell by 20% in France. And transport is almost at a standstill: -95% for frequentation in Paris and Lyon according to the Citymapper application and 0 km of traffic jam according to Sytadin during peak hours in Ile-de-France, where the air quality has never been so good in forty years!

Believing “Consistent” with this table the first reports of information on the situation of employees (one third in technical unemployment, one third in telework and the last in the usual workplace), INSEE also tries to assess the effect of confinement on Requirement. Here too, consumption drops by around 35% compared to a normal period. While some expenses remain strong, or even increase, such as food or drugs (+ 5%), others are in free fall, such as clothing or the purchase of capital goods (automobile in particular), due to the closure of almost all non-food businesses.

As Jean-Luc Tavernier, the director general of INSEE takes care to emphasize, this situation is quite “Unprecedented” is expected to evolve rapidly depending on the health situation and the measures taken to stem the spread of the epidemic. The statistical office therefore makes no formal forecast on the annual or even quarterly impact on growth. But each month of confinement of the population, specifies his note, represents a loss of 3 points on the annual GDP. Two months of confinement would therefore amount to a 6 point drop in GDP, a figure in line with the estimates of Bercy and Bruno Le Maire, according to which “Every week, every month of additional confinement makes the situation worse.” Clearly, this means that the country, which initially expected GDP growth of 1.1% according to the Banque de France, will end whatever happens the year in recession.

If we retain the hypothesis of an annual growth limited to 1% at cruising speed, “It would take six years to absorb this shock in the absence of catch-up in the following quarters, reacts economist Patrick Artus, joined by Release. It’s still colossal. “ The INSEE analysis clearly shows that “The rescue of the economy put in place will only work if the shock is not too long”, confirms Philippe Waechter, chief economist at Ostrum Asset Management.

L-shaped curve

By taking over most of the economic activity (partial unemployment, loan guarantees and the probable cancellation of a large part of social and fiscal charges), the government has made “zero bankruptcy” the main objective of his politics. At this stage, forecasts by Euler Hermes, the French credit insurance giant, forecast an 8% increase in bankruptcies in France, which would represent 4,000 additional defaults. But without Bercy’s safety net, the number of bankruptcies would have jumped 20%.

“France, like the rest of Europe, has opted for the open bar strategy, which has nothing to do with what was done in 2008 and a fortiori in 1929, analyzes Patrick Artus, according to whom several lessons have been learned from the past. “We no longer have a debt problem, the ECB is taking care of it. The banking system is solid, with 300 billion loans guaranteed by the State and households which, if we do not witness an explosion of unemployment, will remain solvent “, he sums up. “The biggest problem in my opinion is corporate debt. The longer it lasts, the more debt and bankruptcies will accumulate, he predicts, preventing them from investing and therefore preventing the economy from starting again. ”

While economic circles initially bet on a U-shaped recovery curve, the government does not believe in a rapid restart. “The French and the Europeans are not going to start buying hundreds of thousands of cars overnight”, said Bruno Le Maire, even if consumption already seems to have started again in China, especially in the luxury sector. It is also difficult, when international trade collapses due to the closure of borders and the cessation of production, to imagine a rapid recovery in exports. However, it is the second engine of the French economy, contributing to around 30% of national GDP.

The most feared scenario would be that of an L-curve scenario, synonymous with lasting stagnation due “Of a weaker capacity to stem the health crisis”, says one at Euler Hermes. “Unlike Europe, the American crisis, where the unemployment rate is already exploding, is likely to be much more serious, concludes Patrick Artus, cascading into a banking and financial crisis due to the inability of households to repay their loans. “ A generalized crisis which, for once, would give substance to a 1929-style scenario.

Christophe Alix



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https://www.liberation.fr/france/2020/03/26/comment-la-france-tente-d-amortir-la-chute_1783235

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