Consequences, explanations and hopes, understand everything about the fall in GDP

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INSEE recorded for the second time a historic decline in GDP in the second quarter of 2020 with a fall of 13.8%. – ISA HARSIN / SIPA

  • GDP fell 13.8% in France in the second quarter of 2020 due to the coronavirus epidemic and the total halt of many activities during containment.
  • However, this decline remains less significant than the forecasts calculated in June, which estimated it at 17%.
  • “This unprecedented figure gives us an order of magnitude […] but this is a first estimate, ”notes Mathieu Plane, of the OFCE. And it “does not mean that we have gone back X years”, reassures Julien Pouget, of INSEE.
  • But the economy does not like uncertainty, and doubts about the continuation of the pandemic could undermine the recovery drawn since deconfinement.

“We are not powerless in the face of the crisis”. This Friday, just hours after the publication by INSEE of quarterly GDP figures (gross domestic product), the Minister of the Economy, Bruno Le Maire, wanted to be reassuring. But the data unveiled by the national statistics institute is frightening. Never has France experienced such a decline in its activity.

In just three months, this indicator of the country’s economic life has fallen by 13.8%. A recession that comes after a first historic drop of 5.8% recorded in the first quarter of 2020. How to explain and analyze this dizzying drop? And are there, in the data calculated by INSEE, factors of optimism for the months to come? 20 minutes make the point.

How can this fall of 13.8% be explained?

In its summary note, INSEE is categorical. The containment measures taken as part of the fight against the coronavirus epidemic are responsible for these results. Contacted by 20 minutes, Julien Pouget, head of the economic situation at the Institute, explains: “The 2nd quarter includes most of the weeks of confinement. During this period, household consumption was particularly low. Many businesses considered non-essential were then closed. So mechanically, there has been very little activity, particularly in certain sectors such as hotels and restaurants ”.

As the main component of growth, French household consumption actually fell by 11% between March and May. But other indicators bear witness to this general decline in activity, with a 17.8% drop in business investment, a 25.5% reduction in exports and a 17.3% reduction in imports. However, the economist at the OFCE Mathieu Plane wishes to clarify: “This unprecedented figure gives us an order of magnitude and that’s very good. But this is a first estimate and it may be revised in the months and years to come. Usually, the final GDP figures are not known until three years after the year under review ”.

How is France doing compared to its European neighbors?

At the same time, the European Statistical Office Eurostat published its results for the entire Euro zone. In total, the drop in GDP for these 19 European countries amounts to 12.1%. France is one of the most affected countries (with -13.8% therefore) behind Spain (-18.5%) and Portugal (-14.1%). Italy, for its part, recorded a fall of 12.4%, followed by Belgium (-12.2%), Austria (-10.7%) and Germany (-10.1%). For Mathieu Plane, these figures find two explanations. “The first is the correlation between the intensity of the measures put in place during confinement by the different countries and the drop in activity. The second is linked to the specificity of this crisis. We are here faced with an unprecedented shock in its sectoral distribution ”.

Understand: during a “classic” recession, the countries most affected are often the most industrialized, develops the economist: “However, the health crisis has created a phenomenon of economic crisis which affects very specific sectors of activity. : services in general, local shops, aeronautics, tourism or leisure. These are all sectors which are of particular importance in Italy, Spain or France ”.

What prospects are emerging?

Without denying the exceptional nature and seriousness of the situation, Julien Pouget, at INSEE, insists: “Even if there is a dizzying aspect, this figure does not mean that we have gone back X years. This fall results mechanically from the voluntary cessation of part of the activity. The trigger is not economic but health. And the rebound is already underway. As if under the effect of a switch, consumption resumed very vigorously from the start of deconfinement and consumption of goods in June even exceeded the level of last February ”.

On household consumption, Mathieu Plane abounds: “There has never been so much savings and households have never been so rich. The real recovery plan, it is the households who have it in their hands ”. But both warn: the uncertainty related to the evolution of the epidemic must be taken into account. “We could have very positive growth, even double digits in the third quarter. Provided that there are no new measures to stop activity and that economic and social life can continue to coexist with the circulation of the virus, ”explains Julien Pouget.

But the economy does not like uncertainty, recalls Mathieu Plane: “The health situation and the persistence of the circulation of the virus risk contributing to a form of wait-and-see attitude on the part of consumers. Will they still want to go out, to consume? Fear of the next day and the threat of layoff plans can weigh heavily. As with businesses, the state could define a plan to support consumption. “

A solution already implemented by our German neighbors, since Berlin adopted in June a “package” of 130 billion euros intended to encourage consumption with a temporary reduction in VAT. Considered for a while in France, the measure was ultimately not adopted by Bercy.

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