Economic outlook 2020
Since the end of March 2020, INSEE has aimed to disseminate an analysis of the evolution of the economic situation, if possible every two weeks.
Economic outlook - 9 April 2020INSEE
Conjoncture in France
Paru le : 09/04/2020
On 26 March, 9 days after lockdown measures were imposed on the French population to fight the spread of the Covid-19 virus, INSEE’s first estimate of the immediate loss of economic activity was around one third, as a result of an entire section of the French economy being placed on standby.
Two weeks later, as announced, this real-time estimate has been updated and clarified in a new Point de Conjoncture. On 9 April 2020, taking into account the information that INSEE has been able to collect, the order of magnitude of this loss of activity is confirmed. It stands at over a third of GDP (–36%). In the mainly market sectors (which represent 78% of GDP), the loss of activity is estimated at –42%, with nevertheless some strong contrasts: some services are at a virtual standstill (accommodation and catering), as are some branches of industry; if we take the example of agrifood industries, on the other hand, they are operating at a level fairly similar to normal. Household consumption has also dropped by around a third (–35%). Within the scope of the market sector, the decline in household consumption is on the face of it slightly less than that in economic activity, probably the result of a strong destocking trend. Compared with the Point de Conjoncture published on 26 March, this second edition provides a more detailed breakdown of the sectors of activity, and the methodology used is further developed.
These estimates place less reliance than usual on the results of INSEE’s business tendency surveys. Although these surveys provide valuable information, collecting them has become difficult as a result of the current health crisis. In addition, the surveys for March mainly reflect the opinions of business leaders surveyed in the first half of the month (opinions that were already tinged with a great deal of anxiety), hence before the lockdown. It is likely that the April surveys, to be published in two weeks’ time, will show an even greater slump in the business climate.
To measure the strength of the current crisis, the method adopted by INSEE is very different from the more traditional method used during the 2008-2009 crisis, which was on a lesser scale. Our estimates are based on less conventional sources: qualitative feedback, and high-frequency data such as information from bank card transactions and search engine statistics, for instance. Once again, we would like to thank the wide variety of bodies that provided us with information: CB Bank Card Group, SNCF Réseau, RTE, the Directorate General for Enterprises, France Industrie and various professional federations. We also had productive discussions with our colleagues at Rexecode, OFCE (French Economic Observatory) and Banque de France. Of course, INSEE is solely responsible for these estimates.
As well as French bodies, some international bodies have also produced estimates of loss of activity for various countries, including France. For example, our colleagues at the OECD and also the ifo Institute (German institute for economic research) recently published estimates based on the assumption of uniform decline in activity in all sectors in the different countries studied. Differences between countries then mainly reflect sectoral differences. Our approach, focusing only on France, is based more on the data that were available to us, drawn from a very wide variety of sources.
Our estimate seems compatible with the first available global statistics, for instance on electricity consumption and the functioning of the labour market.
According to RTE France, the lockdown has led to a reduction in electricity consumption of around 15 to 20%, all other things being equal (equivalent meteorological conditions), with a significant decline in the major manufacturing industries (–27% in the second week of lockdown compared with the pre-crisis period) and rail transport (–57%), whereas residential consumption has tended to increase.
Regarding the labour market, our colleagues at DARES have published a weekly dashboard tracking, among other things, the figures for people on short-time working schemes. It is likely that by 7 April 2020, there will be 6.3 million employees on these schemes, or almost one third of all private sector employees. This figure could increase further in the short term, as companies have 30 days from the middle of March to submit their applications, with retroactive effect.
Next, we will carry out more in-depth analyses to link these statistics to the estimated drop in activity sector by sector.
Alongside these global assessments, we were also able to use bank card data to analyse consumer behaviour at a more detailed level, both before and during the lockdown. There was large-scale panic-buying just before the lockdown: for example, food spending on Monday 16 March 2020 was more than three times that of the corresponding Monday in 2019. Household consumption has since stabilised and is in sharp decline compared with normal, but in different ways depending on the sector. Distance selling has declined less than “physical” selling. But even in sectors where transaction amounts are maintained, purchase frequency is decreasing, although there is a tendency for the average basket to increase.
Finally, as in the 26 March Point de Conjoncture, we are not seeking to forecast quarterly GDP growth in this new edition, much less growth for the year. If it proves possible, INSEE’s national accountants will publish the first estimated accounts for Q1 2020 at the end of April. GDP growth is likely to be strongly negative in Q1 and probably even more so in Q2, depending on the duration of the lockdown and how it is lifted.
We retain the estimate of an accounting loss of 3 annual GDP points for one month of lockdown. The effective loss will in all probability be greater because, as many economists have already pointed out, it is very unlikely that the lifting of the lockdown will be followed by an immediate return to normal economic activity: it will be a gradual process; the reopening of businesses that have been closed and the return to normal consumer habits will not happen immediately; workers with children to look after will not necessarily become available straight away. In addition, the longer the lockdown lasts, the more time the value chains in some sectors will need in order to reorganise, and the more adversely affected activity in some services to businesses will be in the long term.
Beyond their immediate impact, estimated here, the effects of the measures taken to contain the epidemic will cast a shadow over the weeks and months to come, especially as the lockdown is going to be long.