France: Economy contracts at marginally sharper pace than initially reported in Q4 2020
A second GDP release showed that the economy shrank 1.4% on a seasonally-adjusted quarter-on-quarter basis in the final quarter of 2020 (Q3: +18.5% s.a. qoq), revised down slightly from the flash estimate of 1.3%. Meanwhile, on an annual basis, economic activity declined 4.9% in Q4 (previously reported: -5.0%), following Q3’s 3.7% contraction. For the year overall, GDP dived 8.2% (previously reported. -8.3%), marking the worst reading since at least 1950 and contrasting 2019’s 1.5% expansion.
The downturn largely reflected the reimposition of Covid-19 lockdown measures and was driven by a decline in domestic activity. Household consumption fell 5.4% in seasonally-adjusted quarter-on-quarter terms in Q4, swinging from the 18.1% expansion logged in Q3, amid the closure of non-essential businesses from end-October. Moreover, public spending contracted 0.3% in Q4 (Q3: +14.6% s.a. qoq), while fixed investment growth moderated to 1.1% from the 24.1% increase logged in the previous quarter.
On the external front, growth in exports of goods and services waned to 5.8% in Q4 (Q3: +22.1% s.a. qoq), likely held back by muted global demand amid the resurgence of new virus cases and tightening of restrictions across the globe. In addition, growth in imports of goods and services softened to 1.8% in Q4 (Q3: +16.4% s.a. qoq).
Commenting on the outlook for the French economy, Daniela Ordonez, chief French economist at Oxford Economics, reflected:
“Prospects for early-2021 have deteriorated again as the spread of the new virus variants across Europe has led to an extension of containment measures. Moreover, the deployment of the vaccines has been slower in Europe than in other countries such as the UK and the US, which means the positives from inoculation will be very modest in the short term. Overall, we expect French GDP to record a second quarterly contraction of 0.4% q/q in Q1, albeit a milder contraction than the 1% fall seen for the eurozone overall. [… ] Overall, we still forecast French GDP growth of about 5% this year, with expansion of 4.8% seen in 2022. We see GDP returning to pre-crisis levels in H1 2022, and employment by end-2022.”