French architecture in France

France GDP Q3 2020

France: Economy rebounds at unprecedented pace in Q3

A second GDP release showed that the economy expanded 18.7% on a seasonally-adjusted quarter-on-quarter basis in the third quarter (previously reported: +18.2% s.a. qoq), contrasting the 13.8% contraction recorded in the second quarter and marking the strongest expansion on record. On an annual basis, economic activity fell 3.9% (previously reported: -4.3% yoy), softening from Q2’s 18.9% contraction.

The strong rebound came amid the easing of Covid-19 restrictions and reflected marked improvements in both domestic and external demand. Household spending increased 17.9% in seasonally-adjusted quarterly terms in the third quarter, contrasting the second quarter’s 11.4% contraction, while fixed investment grew 23.9%, swinging from the previous quarter’s 14.5% decline. Moreover, government spending grew at the fastest pace in over a decade, expanding 15.5% (Q2: -10.6% s.a. qoq).

On the external front, exports of goods and services increased 22.1% on a seasonally-adjusted quarterly basis in the third quarter, which contrasted Q2’s 25.1% contraction, as global demand dynamics improved. In addition, imports of goods and services rebounded, growing 16.8% in Q3 (Q2: -16.8% s.a. qoq).

Looking ahead, after this year’s coronavirus-induced slump, the economy is set to return to growth in 2021 as domestic and foreign demand revive. That said, elevated uncertainty surrounding the trajectory of the health crisis and weak fiscal metrics pose downside risks.

Commenting on the outlook, Daniela Ordonez, chief French economist at Oxford Economics, reflected:

“We continue to expect GDP to fall by 4.5% q/q in Q4 as the second lockdown takes its toll. The government has presented an ambitious vaccination plan starting from the start of 2021, a bit earlier than we had expected. Overall, we have raised our GDP forecasts slightly and now see the economy contracting by 9.1% this year, from -9.3% last month, and then rebounding by 6.2% in 2021, up 0.5pp from last month. […] There are upside and downside risks to the 2021 outlook. If the government’s vaccination programme is conducted effectively, widely and rapidly, there is a chance of reaching an important level of ‘herd immunity’ before the summer, which would mean upside risks to our forecasts. In contrast, if there are major logistical issues – such as having the infrastructure to transport and store the vaccines, building vaccination centres or putting together enough workforce – or if a large share of the population is reluctant to get vaccinated, the way back to normal could be longer.”

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