Winter 2021 was bookended by two lockdowns (November 2020 then April 2021), and was badly affected by the health restrictions. For 7 months, between November 2020 and May 2021, the French economy plateaued at less than 96% of its pre-crisis level (i.e. by convention, the Q4 2019 level). The cumulated loss of activity over this period would appear to have reached about 3 annual GDP points (against 6 annual GDP points lost between March and June 2020, during the first wave of the epidemic).

However, since early May, all the indicators, from the monthly business tendency surveys to the higher-frequency data, suggest a strong recovery, in line with the gradual lifting of lockdown. As a result, on a month by month basis, it is likely that the profile of Q2 2021 will be a very contrasting one. After April under lockdown, with activity at 5½% below the pre-crisis level, activity in May looks set to return to about 4% below this level then to 2½% in June. These overall estimates are unchanged from the previous Economic Outlook published at the beginning of May.

All in all, and taking into account the revisions introduced into the latest series of national accounts, French GDP would appear to have increased by 0.7% in Q2 compared to Q1 (after –0.1%), a rebound driven mainly by the increase in household consumption, which for the most part was less restrained at the end of the quarter than at the start. As was the case last year at the same time, the rebound is expected to be rapid and extensive – the mirror image of the sudden drops in activity linked to the health containment measures.

According to the business tendency surveys, business leaders and households seem to be sweeping away any remaining doubts regarding the possible persistence of the pandemic and the restrictive measures: the hope brought by the vaccine exceeds the threat of new variants. In June, household confidence therefore returned to its pre-crisis level, and the business climate was at its highest since 2007.

Although a resurgence of the epidemic cannot be ruled out, economic agents seem to believe that this would not necessarily result in such severe restrictive measures as during the previous waves. Given this assumption, French economic activity could return to more or less its pre-crisis level by the end of 2021.

Germany also looks set to return to its pre-crisis level by the end of 2021, preceded by the United States, which is expected to reach this target by this spring. Among the major European economies, Spain still appears to be the most affected (at 3% below its pre-crisis level at the end of the year), while Italy and the United Kingdom appear to be in an intermediate situation.

Rather, it is likely to be a distorted reflection of what it was formerly, as a result of the reshaping of sectors linked to the crisis. Overall, market services are expected to return to their pre-crisis level, but the branches most affected by the health measures (accommodation-food services, transport, etc.) are nevertheless expected to remain below this level – although the difference compared to the pre-crisis level is likely to be nothing like that measured during the lockdowns. Other service branches (e.g. information and communication) are expected to exceed their end of 2019 level of activity significantly. In industry, it is likely that the manufacture of transport equipment will remain affected.

On the demand side, household consumption and corporate investment at the end of 2021 are expected to exceed their level measured two years earlier by about 1%, and imports look set to return to their previous level. Exports, on the other hand, are likely to remain 4% below their Q4 2019 level.

All in all, the quarterly growth forecasts for Q3 (+3.4%) then Q4 2021 (+0.7%) suggest a relatively rapid recovery. As an annual average, GDP is expected to increase by 6.0% in 2021 (after –8.0% in 2020), driven mainly by domestic demand and in particular by household consumption (+5.2% forecast, after –7.2% in 2020). The contribution of foreign trade to annual growth is expected to be slightly negative.

During the health crisis, payroll employment fell much less than economic activity, protected mainly by an extensive reliance on furlough schemes. By the end of 2021, these schemes are expected to decrease gradually, but the rebound in payroll employment (fairly vigorous from Q1) is likely to match that in economic activity. All in all, payroll employment looks set to increase by more than 300,000 in 2021, and it too is expected to return to its pre-crisis level by the end of 2021.

The lifting of health restrictions is expected to enable some of those who had to leave the labour market to return. The number of active workers is therefore likely to rebound sharply, especially in H2 2021. The rise in both the number of workers and in the number of people in employment is expected to result in near stability in the unemployment rate (8.2% forecast for the end of 2021, after 8.1% at the beginning of 2021, similar to the pre-crisis level).

Inflation was very low in 2020, mainly as a result of falling energy prices. The global recovery has pushed up oil prices and thus caused inflation to rebound: to +1.5% year-on-year in June 2021, and it is expected to reach 2% during the summer, before easing slightly, with core inflation settling at around 1%.

In the business tendency surveys, the balance of opinion among industrialists on the general prospects for selling prices in their sector reached a historic high in June, reflecting the increased prices of inputs and, occasionally, tensions over sourcing. However, these tensions are unlikely to have more than moderate repercussions on consumer prices by the end of the year, in a context where margin rates have been generally preserved during the crisis. In addition, there are unlikely to be any “second-round” effects causing wages to accelerate over our forecasting period (end of 2021).

Household income is still likely to be dynamic in 2021: earned income is expected to pick up while social benefits gradually decline. On average over the year, despite the rise in inflation, the purchasing power of households’ gross disposable income looks set to accelerate (+1.8%, after +0.4% in 2020). Given that consumption is brisk, households’ savings ratio, after peaking in 2020, is expected to return to a level close to its pre-crisis level by the end of 2021, at a little over 15%.

By the end of 2021, the French economy overall is expected to return to its level at the end of 2019: it would then be 2 to 2½ GDP points below the level that could have been expected if the pre-crisis trend trajectory had been able to continue over these two years. However, this measurement of “lost ground” is not definitive. In the longer term, we can attempt to simulate, at a detailed sector level, the effects of changes in preferences that are likely to persist beyond the crisis.

This exercise involves mobilising trends specific to each sector before the crisis and producing assumptions about their different degrees of resilience. All in all, these estimates are consistent with a loss of aggregated GDP of around 1.6 points compared to the pre-crisis trend GDP. More than half of this loss is expected to be from sectors representing just over 15% of total value added (including the manufacture of transport equipment, accommodation-food services, transport services, etc.).

However, in addition to sectoral effects, the productivity trend of the economy as it emerges from the crisis is surrounded by significant uncertainties, some pulling it upwards, like the accelerated adoption of digital technologies, but others pulling it down, like the weakening of human capital linked with the closure of schools and the difficulties that may have resulted from distance learning.

As at the start of the crisis, forecasts presented in this Economic Outlook are conditional on the health situation being stabilised, or at least on the assumption that any deterioration would not lead to the introduction of such forceful restrictions as were applied for the first three waves of the epidemic.

Signs of occasional overheating in some sectors, especially tensions over sourcing, are all areas for vigilance. At this stage, it is mainly automotive production, which has been in decline for several months, that has been affected. Other sectors could be affected in turn, although these difficulties are related primarily to “restarting” the world’s economy and should therefore mostly diminish.

Finally, assuming that the epidemic is contained, there is a possibility that activity in H2 will exceed the forecasts, in a context where both household income and the productive fabric have been generally preserved. Responses to the Covid-19 pandemic were certainly exceptional in several respects: the scale and suddenness of the lockdown measures, and at the same time, the scale and speed of economic policy responses, and finally the scale and speed of vaccine rollout. Taken together, all these measures could create conditions for a stronger than expected recovery.