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GDP declines in final quarter of 2020 amid renewed lockdown measures

The economy contracted in the fourth quarter of 2020 amid the reimposition of coronavirus lockdown measures. According to a preliminary estimate, GDP fell 1.3% on a seasonally-adjusted quarter-on-quarter basis in Q4, contrasting the 18.5% expansion logged in Q3. That said, the result beat market analysts’ expectations of a 4.0% decrease. On an annual basis, economic activity declined 5.0% in Q4, following the previous quarter’s 3.9% decrease. Taking the year as a whole, the economy contracted 8.3%, contrasting 2019’s 1.5% expansion and marking the worst reading since at least 1950.

The fourth quarter’s downturn largely came on the back of a decline in domestic activity. Household spending swung to contraction in the quarter, falling 5.4% in seasonally-adjusted quarter-on-quarter terms and contrasting the 18.2% expansion in Q3, largely due to the closure of non-essential shops from the end of October. Moreover, government consumption dropped 0.4% in Q4, contrasting Q3’s 14.6% increase, while fixed investment growth moderated to 2.4% in the same period, from the previous quarter’s 24.0% rise.

On the external front, growth in exports of goods and services slowed to 4.8% in Q4 (Q3: +21.9% s.a. qoq), likely weighed on by weaker global demand amid the resurgence of Covid-19 cases and tightening of restrictions. In addition, growth in imports of goods and services waned to 1.3% in Q4 (Q3: +16.2% s.a. qoq).

Looking ahead, the short-term outlook is clouded by uncertainty amid stubbornly high numbers of new Covid-19 cases and the slow deployment of vaccines. This was highlighted by Tullia Bucco, economist at UniCredit, who reflected:

“The near-term outlook remains surrounded by uncertainty due to a resurgence in the number of infections, an increasing share of which is attributed to the UK variant of the virus, and delays in the mass vaccination program. As we write, the French government is considering new restrictions to contain the spread of the virus, including the introduction of a third lockdown. The decision is difficult because of the additional economic costs stricter restrictions would involve and due to increasing skepticism among the population about the government’s ability to keep the situation in check. New restrictions are likely to be announced in the coming days. All this supports our expectation that GDP is likely to record a further contraction in 1Q21 before a recovery sets in.”

Meanwhile, reflecting over the medium-term outlook for the French economy, Charlotte de Montpellier, economist at ING, commented:

“The medium-term outlook is more optimistic. The vaccination campaign and the return of good weather should allow a gradual relaxation of health restrictions in the second quarter. We believe that this relaxation should lead to a strong rebound in consumption, as observed in the third quarter of 2020. […] If we further underline the important support of fiscal and fiscal policy expected for 2021 as a whole, as well as that of monetary policy, the conditions are in place for a significant improvement in prospects once the pandemic is under control. Nevertheless, the solid rebound will not erase the catastrophic start to the year. And the longer it takes to bring the pandemic under control, the greater the economic consequences.”

FocusEconomics Consensus Forecast panelists see the economy expanding 6.7% in 2021, which is down 0.3 percentage points from last month’s forecast, and 2.9% in 2022.

France - Investment Data

2015   2016   2017   2018   2019  
Investment (annual variation in %)0.9  2.5  5.0  3.2  4.3  

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