The GDP in France and in the Eurozone countries has clearly improved over the three Summer months. Nevertheless, the level of activity remains a little below 4% of the 2019 average at the end of the 3rd quarter. Only Spain, among the large countries, has a contraction of around 9%.
All European countries will enter into new health constraints period causing a contraction in activity over the last three months of the year and a carryover growth for 2021 at the end of 2020 which could be negative. In France, Bruno Lemaire, the Minister of the Economy, expects a contraction of -11% in 2020, i.e. at least -9.5% in the last quarter and a carryover of -3% for 2021.
The French GDP rebounded strongly in the third quarter of 2020. It increased by 18.2% after a historic decline of -13.7% during the 3 months of Spring. Compared to the period before the health crisis (last quarter of 2019), GDP is down by -4.1%. The shock remains very important especially while we enter a new confinement.
Growth measures are based on the annual average, so compared to the 2019 average, the carryover growth for 2020 is -8.3%. In other words, if activity in Q4 remained at the level of Q3, activity would contract by -8.3% in 2020.
Containment will add negative points. Bruno Lemaire, the Minister of the Economy, expects a contraction in activity of -11% for the whole year. The calculation then suggests a contraction of at least -9.5% in the last quarter of 2020. This is less than what was recorded during the spring lockdown but it is a very strong figure. In this case, in fact, the carryover growth for 2021 at the end of 2020 would be -3%. Having a positive growth figure in 2021 is now becoming a real challenge. To remain on a robust momentum over time, the rebound in the first quarter of 2021 must be comparable to that observed in the third quarter of 2020 and which has just been released by INSEE. The challenge for all and for the government will be to promote this rebound which would make it possible to erase the impact of the new confinement. It is an issue on employment that will be at the heart of the coming rebound.
Reading the French growth figure
Private demand picked up sharply during the summer months. Consumption of goods is at a very high level. Spending on goods is higher than in the last quarter of 2019, despite the decline observed in September. On the other hand, spending on services is still down. Services are the sectors most penalized in the crisis both by legal constraints and by the reluctance of the French to use them.
Business investment improved in the third quarter.
All in all, private demand is still below its pre-crisis level. In the third quarter, it was still 1.6% below the measure at the end of 2019. The new confinement will cause a further decline in this private demand.
The other two major items in the breakdown of GDP also made positive contributions. Government spending and foreign trade with a strong rebound in exports pushed GDP up. Inventories contributed zero.
European dynamics
In the Euro Area, all growth figures rebounded strongly in the third quarter. However, the profiles are not exactly the same. In France and Italy, as for the Euro zone, the figure for the third quarter is, in absolute terms, higher than that of the Spring. The catching up is brutal. In Germany and Spain, the third quarter figure is somewhat lower, in absolute terms, than the second quarter.
There is nevertheless a strong convergence in the GDP performance at the end of the third quarter with the exception of Spain. They are all just over -4% below the 2019 average. This is what we see on the graph. Only Spain is at almost -9%.
At the end of October, all these countries entered a period of additional health constraints. Activity will therefore contract in the last quarter of this year, causing, as in France, a very weak or even negative growth gain for 2021. The unemployment rate, which continued to rise in September to 8.3%, will deteriorate further in 2021.
___________________________________________________
The infographic of this post can be downloaded
