France: Sharpest contraction ever recorded in Q1; economy enters recession
Economic activity shrank a seasonally-adjusted 5.8% quarter-on-quarter in Q1 2020, marking the sharpest contraction ever recorded, according to a first estimate by the French Statistical Institute (INSEE) on 30 April. The print came on the heels of a 0.1% dip in Q4 2019 and overshot analysts’ expectations of a milder 3.5% drop. In year-on-year terms, the economy contracted 5.4%, contrasting a 0.9% expansion in the previous quarter.
Economic activity fell across the board as Covid-19 ravaged the economy in March. Household spending collapsed by 6.1% on a quarterly basis (Q4 2019: -0.3% quarter-on-quarter seasonally-adjusted) as lockdown measures hindered consumption, while government spending fell 2.4%, contrasting a 0.5% expansion in Q4 2019. Furthermore, capital spending plunged 11.8% (Q4 2019: 0.0% qoq s.a.) as companies held on to cash amid muted revenue and postponed their investment decisions.
On the external front, exports contracted 6.5% in Q1 (Q4 2019: 0.0% qoq s.a.), on the partial standstill of global trade prompted by the virus. Similarly, imports dropped 5.9% from a 0.3% dip in the previous quarter. Taken together, the external sector subtracted 0.2 percentage points from the headline reading, contrasting a 0.1 percentage point contribution in Q4 2019.
The economy will likely shrink this year, ravaged by Covid-19. Raising unemployment and social distancing measures should dampen private consumption, while heightened uncertainties over the length of the pandemic will likely curtail fixed investment. Moreover, the country’s fragile fiscal conditions are set to deteriorate further ahead.