27 November 2020

2020- n° 303

In Q3 2020, Household gross disposable income and non-financial corporations’ profits recovered with the rebound of economic activity Quarterly national accounts - detailed figures - third quarter 2020

In Q3 2020, GDP in volume terms bounced back: +18.7% (revised by +0.4 points compared to the first release) after – 13.8% in Q2 2020. Nevertheless, GDP remained well below the level it had before the health crisis: measured in volume, compared to its level in Q3 2019 (year-on-year change), GDP in Q3 2020 was 3.9% lower (previously estimated at 4.3 % lower). Revisions are mostly due to the integration of new data for September, especially for household consumption and investment in services.

All components of domestic demand rebounded sharply in Q3. Household consumption expenditure increased strongly (+17.9% in Q3, after –11.4%) and approached their pre-crisis level (–1.3% year-on-year), while general government expenditure slightly exceeded it (+0.5% year-on-year). On the other hand, total GFCF remained largely under its pre-crisis level (–4.8% year-on-year), despite its strong rebound in Q3 (+23.9% after –14,5%). Overall, total domestic demand (excluding inventory changes) contributed by +19.5 points to GDP growth this quarter.

Foreign trade also rebounded this quarter, especially exports (+22.1% after –25.1%). Imports on the other hand increased in a less pronounced manner (+16.8% after –16.8%). Overall, foreign trade made a positive contribution to GDP growth: +0.7 points, after –2.3 points in Q2. Finally, changes in inventories contributed negatively to GDP growth (–1.5 points after –0.9 points).

Household gross disposable income (GDI) sharply bounced back in Q3 (+3.7% after –2.6%, its largest increase since 1983. Year-on-year, it grew by +1.0% after –1.9%). Total wages received by households strongly increased (+13.1% after –10.8%), driven by a decrease in the use of furlough scheme and the rebound of employement. This increase in household wages was partially outweighed by a loss in social benefits received by households (–6.2% after +8.3%), which remained however above their pre-crisis level (+5.0% year-on-year). Indeed, partial activity and sick leave allowances were still higher than average, despite having decreased in Q3. Furthermore, unemployment allowances and social assistance expenditure to households also increased, while the back-to-school allowance was exceptionally raised. Income and wealth taxes bounced back (+11.5% after –8.5%) but remained below previous year’s level, due to the reform of the income tax scale and of the housing tax that took place before the health crisis. Finally, social contributions paid by households increased (+8.0% after -8,6%), due to the growth of labour income.

Households’ consumption prices slightly accelerated (+0.2% after –0.3%) and the purchasing power of households’ GDI grew by +3.5% (after −2.4%). Measured by consumption unit to bring it to an individual level, households’ GDI grew by +3.4% (after −2.5%). Due to the strong rebound of households’ consumption (see above), households’ savings rate strongly decreased: it stood at 16.5% in Q3 2020 after 26.5% in Q2. It remained however above its 2019 average (14.9%).

Total hours worked grew by+20.6 % during Q3 2020 (after –17.1%). This rise mainly followed the decrease in the demand for sick leave and partial activity. Employment and over-time hours rose too. Nevertheless, total hours worked remained well below their pre-crisis level (−4.3% year-on-year).

In Q3 2019, non-financial corporations’ profit ratio grew again. It stood at 30.3% (after 27.8%), and increased therefore by 2.5 points. This rise came from the rebound of the value added in Q3 2020 (+23.3% in Q2 after –17.3% in Q1). Nevertheless, this increase was partially outweighed by the rebound of the payroll and social benefits. Moreover, the recourse to subsidies (Solidarity Funds, which benefited partly to non-financial corporations, but mainly to own-account workers) was less important than during the previous quarter.

In Q3 2020, general government’s net borrowing decreased by 7.4 points: the deficit stood at 4.9% of GDP after 12.3% during Q2 2020. The enhancement of the public deficit is due to the increase in revenues (+11.1% after –8.8%), driven by the recovery of economic activity (increased in VAT, households’ and corporate taxes and social contributions). Meanwhile, government's expenditure slightly decreased (–0.9% after +1.4%), driven by the decrease in social benefit expenditure (for partial activity and sick leave), business aid (Solidarity Funds), and the after-effects of the payment of bonuses and overtime hours for the health workforce. This fall was tempered by the recovery of activity of the public sector: increase in social transfers in cash (reimbursement of extra Covid health costs), GFCF and intermediate consumption.

The GDP growth estimate for Q3 2020 stood at +18.7%. It is revised upward by 0.4 points. The GDP growth estimate for Q2 2020 is revised by -0.1 points at –13.8%. These revisions are due to the integration of new data and to the revisions of existing indicators.