After a 5.8% drop in the first quarter, GDP is expected to decline by 20% in the second quarter, even if economic activity is picking up “clearly”. Over the year, the decline should be greater than the 8% expected by the government. It is vital that households and businesses regain confidence.

According to INSEE, economic activity in June could still be around 14% below normal and 25% in May.

Activity has resumed in France since the start of deconfinement on May 11, but it is still far from having regained its cruising speed. This is what emerges from INSEE studies published this Wednesday morning. Economists at the Statistical Institute estimate that activity in June could still be around 14% below normal and 25% in May. “In the second quarter, GDP would thus decrease by around 20%after declining 5.8% in the first quarter, ie the most important recession since the creation of the French national accounts in 1948 ”, anticipates INSEE.

“If it were followed by an immediate return to normal as of July, such a drop in economic activity expected in the first half of the year would result in a loss of nearly 8 points in the annual growth rate of GDP in 2020 “, continues INSEE. The decline in the wealth produced in 2020 by France would then be in line with current government estimates. But, warns INSEE, “The overall impact of the epidemic in 2020 will certainly be greater, because the economic recovery, in France and around the world, will a priori be still gradual in the second half of the year”.

Morale of the bosses still at half mast

The recovery is done in dispersed order. First, on the business side, “Economic activity is picking up, cautiously but clearly, in most major sectors”, according to INSEE. The loss of activity linked to the health crisis would now only be “more” in the order of 21% since the deconfinement, whereas, at the beginning of May, it was estimated at 33%. Clearly, the French economy is running at 80% of its “normal” situation, before the Covid-19 pandemic. It only worked two-thirds at the beginning of May.

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The trend is therefore improving. Likewise, the business climate is better oriented since this indicator, which surveys 10,000 business leaders every month in France, gained 6 points in May. However, it remains “At a particularly low level”, according to INSEE. In industry, retail trade and services, French bosses have yet to regain their optimism. Business leaders “Remain very worried about the request addressed to them”, points out INSEE. But this result must be put into perspective: the survey was carried out between April 28 and May 19, which means that the majority of respondents were questioned before deconfinement.

Resumption of consumption

On the household side, consumption is well distributed. During the first week of deconfinement, she even bounced back “Perhaps more strongly in France than in Italy or Spain”, according to INSEE. That week, consumption would have been “only” 6% lower than its pre-crisis level while its decline was estimated at 32% in early May. But part of these expenses correspond to purchases that had to be postponed during containment. It is therefore still too early to know what the “steady state” of consumption will be in the coming weeks.

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On the one hand, the French remain pessimistic for the country. Households’ expectations for the future standard of living in France were at their lowest in May. But they are a little more optimistic about their personal situation. “This reflects, for some of them, the constitution during the confinement of a forced savings”, considers INSEE. “The fact that the balance of opinion of households on their ability to save is at its highest at the beginning of May may make us rather optimistic for the future”, considers Julien Pouget, head of the conjuncture department at INSEE. “Of course, the situation of households is different depending on whether their income was preserved or not during confinement, but on average, there is a forced savings reserve which should support the recovery”, continues the economist.

According to the French Observatory of Economic Conjunctures (OFCE), on average, the disposable income of households fell by only 7% during confinement thanks to short-time working while consumption fell by 30%. All that savings will only be spent if the optimism returns. “Psychological factors will play on household morale, health fears as well as their expectations on the future of economic activity”, emphasizes Julien Pouget. Hence the importance of the coming weeks. It is now vital for the French economy that the confidence of households but also of companies recover quickly.