▪ French GDP fell by 8.2% in 2020 after following a bumpy path over the year. The overall contraction was slightly smaller than we predicted in December, albeit still historic in size. The second lockdown had a smaller than expected impact on activity as the measures were more targeted and the economy was better-equipped to adapt to the public health situation.
▪ Based on the assumption that, in average terms, the first half will continue to be marked by significant health restrictions, activity should remain stable over the first part of 2021. This is consistent with our economic surveys for the start of March. Economic activity should then recover sharply as of the second half of 2021, as the vaccine roll-out enables a gradual lifting of the health restrictions, leading household consumption to rebound.
▪ Over the full year 2021, GDP is expected to grow by 5.5%. The figure is slightly higher than our December projection as the lower growth in the first half of 2021 should be offset by the greater resilience in activity at end-2020 and its more dynamic pace in the second half of 2021. The rebound should extend into 2022, with growth remaining very vigorous at around 4%, and activity is projected to return to its pre-Covid level by the middle of the year.
▪ The anticipated rebound in household consumption seems all the more likely given that household income has largely been preserved during the crisis, thanks both to the government cushioning measures and to the notable resilience of the labour market.
▪ The deterioration in employment should indeed be less severe than anticipated in our December projection, as the adjustment to the activity shock seems to have been made more via working hours than via staff numbers. Unemployment is predicted to remain well below 10% in 2021, and should then decline again to below 9% by the end of our projection horizon.
▪ Inflation is expected to be fairly volatile in 2021, varying between 0.5% and 1.5% year-on-year. It should nonetheless remain moderate over the entire projection horizon, at an annual average of around 1%.
This projection is still subject to major risks, linked notably to the strong uncertainties over public health. Based essentially on different assumptions about the health situation, we are continuing to frame our baseline trajectory with two alternative scenarios, but these are more balanced than in our December projection.
The decline in activity at end-2020 was less severe than anticipated and a marked rebound is expected for the second half of 2021
The 8.2% contraction in activity in 2020 was smaller than that predicted in our December 2020 macroeconomic projections (–9%), mainly because the renewed slump in GDP in the fourth quarter ultimately proved relatively contained (–1.4%). The more targeted nature of the restrictions introduced in November-December 2020, and the ability of businesses and households to adapt to the constrained environment, all helped to mitigate the economic impact of the second lockdown compared with the shock of March-April 2020. Household consumption did admittedly fall markedly in the fourth quarter (–5.4%), but household and business investment proved more resilient (+4.2% and +0.9% respectively) and exports continued to rebound (+5.8%).
Our baseline scenario for 2021 is based on a number of assumptions. First, the assumptions regarding the international and financial environment, for which the cut-off date is 16 February (see Table A in the appendix) are the same as those used in the Eurosystem projections for the entire euro area. The upward revision to global demand for French goods and services is largely offset by the rise in oil and commodity prices. The new measures announced by the US administration (the “Biden Plan”), which have not yet been completely finalised, are not taken into account in our baseline scenario, but are included among the risks to our projection (see last section of this publication). Second, and most importantly, the evolution of the economic environment remains contingent on the health situation. We assume that the first half of 2021 could be marked by periods of tightening and relative easing of the restrictions, but that, in average terms, the constraints to economic activity will remain comparable to those at the start of the year. In this baseline scenario, it is the widespread roll-out of the vaccines from the second half and their effectiveness against the different variants that succeeds in slowing the pandemic significantly and allows the restrictions to be gradually lifted.
Activity is only expected to remain stable in the first half of 2021, which at this stage is confirmed by the short-term indicators available since the start of January.
In the third quarter, however, household consumption and activity should rebound markedly and this momentum should be maintained over the end of 2021 and start of 2022. 2022 is also expected to be a catch-up year and growth should remain strong (+4%), driven by household consumption. The economy should therefore reach its end‑2019 level of activity by around mid-2022. Chart 1 shows the trajectory of this return to a “normal” level of activity. 2023 is then expected to see a normalisation, with growth remaining robust but returning gradually to the potential rates seen before the pandemic.