France: Economy records largest decline on record in Q2 due to Covid-19 containment measures
August 28, 2020
A second GDP release published by the Statistical Institute on 28 August confirmed that the economy nosedived a record 13.8% on a seasonally-adjusted quarter-on-quarter basis in the second quarter, which followed the first quarter's 5.9% contraction. The result marked the third consecutive quarterly contraction and largely reflected the impact of Covid-19 and associated containment measures on activity.
The downturn was broad-based as lockdown measures to halt the spread of the virus reached into all areas of the economy. Household spending plunged 11.5% in Q2, well below the 5.8% decline logged in Q1. Moreover, government consumption contracted at a sharper rate of 10.3% in Q2 (Q1: -3.3% s.a. qoq), while fixed investment dropped at a quicker rate of 14.9% in Q2, from the 10.0% contraction recorded in the prior quarter.
On the external front, exports of goods and services fell at a more pronounced pace of 25.0% in Q2 (Q1: -6.0% s.a. qoq) amid impaired global demand and severed value chains. In addition, imports of goods and services dropped at a faster rate of 16.4% in Q2 (Q1: -5.6% s.a. qoq). The external sector as a whole therefore subtracted 2.5 percentage points from the headline reading, following the 0.1 percentage-point subtraction in Q1.
On an annual basis, economic activity fell 18.9% in Q2 from the previous period's 5.7% fall.
Going forward, the economy will be hit hard this year as the fallout from Covid-19 evaporates domestic and foreign demand. A rise in the unemployment rate and associated loss of income will hammer household spending, while general uncertainty will drag on fixed investment, trade and tourism. A possible second wave of infections and a deteriorating fiscal profile cloud the outlook.
Author: Hanna Andersson, Economist