Economic indicators are green. After an abysmal drop of 8% in 2020, the gross domestic product (GDP) of the French economy could rebound by around 6.2% in 2021. When presenting their economic report, the INSEE statisticians painted a picture of a more solid recovery than expected.
“Despite the fourth epidemic wave this summer, the recovery continued unlike what we had observed in previous waves. This situation can be observed very well from road traffic. Business has recovered significantly with the reopening of the economy. Vaccination has raised hopes for a lasting recovery ” explained, the head of the economic department, Julien Pouget, during a press point on Tuesday, September 7.
The reopening of many sectors since the spring and the acceleration of vaccination have breathed a breath of optimism into the French economy. Headwinds could, however, disrupt this recovery.
Indeed, economists still expect tensions on certain components and on labor at least until the end of the year. Moreover, such a rebound is hardly surprising given the size of the fall recorded last year. Beyond this “base effect” regularly emphasized by economists, we will probably have to wait a few more months to really see the strength of this recovery.
Growth driven by consumption
Unsurprisingly, activity should be largely driven by household consumption. In fact, INSEE expects consumption to rebound by 4.5% in 2021 after plunging 7.2% last year. Since the end of the third confinement and the gradual lifting of restrictions, the drivers of consumption have accelerated in services, which have been strongly penalized since the start of the pandemic.
“Credit card transactions were maintained in July and August compared to June. Physical sales are driving this growth while online sales have returned to levels close to pre-crisis levels” said Olivier Simon, statistician at the institute based in Montrouge.“
Under the assumption of no deterioration in the health situation, the level of household consumption would return to its pre-crisis level both in services and in the purchase of goods. Some consumption items are still affected in the automobile, catering or tourism “ he added.
Unlike 2020, the French economy has not experienced such drastic bottlenecks. The restrictions were relatively more flexible than during the spring 2020 containment, for example. This decision had caused a sudden drop in demand, particularly catastrophic for the French economy.
The health pass did not affect consumption
With the exception of restaurants, the INSEE surveyors have not observed any major impact of the health pass on the French economy at this stage. The announcement of the implementation of sesame by the Head of State Emmanuel Macron had raised real fears in the sectors concerned.
“Bank card transactions make it possible to trace the amounts of transactions between May 17 and August 29. In cinemas, the date of July 20 does not seem to mark an inflection in fluctuations. In tourist places, there may be have a very specific effect. However, the diagnosis is more visible in restaurants “ informed Olivier Simon.
“This analysis should be taken with caution. It is sometimes difficult to disentangle the effects of the health pass in the examination of bank card transactions” he added. Beyond high-frequency indicators such as bank card transactions, more in-depth surveys of household consumption should provide more details on the evolution of French purchasing behavior.
Tensions on supplies
The economic recovery continues to cause significant friction between supply and demand. The rebound in activity, first in China and then in the United States, led to strong demand for raw materials and components. Which may have caused shortages and increases in producer prices in certain sectors in France.
“Producer prices are feeling this – beyond the base effect linked to their relative weakness in 2020 – and production itself is sometimes constrained in the event of a shortage of inputs. In July 2021, production prices in French industry as well as agricultural producer prices thus increased by around 8% over one year. Among services, the production prices of maritime and coastal freight transport have increased very sharply due to the sustained increase in demand “ indicate the authors of the note.
“There is a strong base effect. Producer prices were very low a year ago.” Julien Pouget added. In the United States, the rise in prices has rekindled the specter of lasting inflation, but in Europe most economists do not seem really worried. “Inflation could occasionally go above 2%. There are still many questions about the second-round effects. Will the rise in prices be transmitted to wages? In industry, the signals are for the moment moderate ” Julien Pouget said.
An acceleration of contamination in the United States and China
In Europe, the economic recovery could nevertheless be affected by a deterioration in the health situation. Among the negative hazards cited by INSEE, “some variants can escape vaccination” recalled Julien Pouget. “Internationally, contaminations tend to rise in the United States and China” he added. To this can be added the long-term effects of a pandemic on the global economy. At this stage, these repercussions are still difficult to measure. The lifting of aid already started in June in France could leave traces on sectors particularly damaged by more than 18 months of pandemic and repeated “stop and go”.
“The activity of the French economy should return to its pre-crisis level at the end of the year despite the resurgence of the epidemic this summer. It is a return to the pre-crisis level but it is not Not a return to normal. There are major sectoral recompositions. In the agrifood industries, the level of activity has returned to pre-crisis levels. In catering accommodation, establishments have been much more affected by tourists fewer foreigners and teleworking. Employees take more meals at home, “concludes Julien Pouget.