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Bank of France expects stronger than expected recovery

14 Sep 2020 04:39 PM

The Bank of France said today that the French post-lockdown economic recovery has been stronger than expected, as growth and inflation expectations were revised up for this year and next year.

Central bank surveys have shown that the downturn in the second largest economy in the eurozone was not as profound as initially feared. Labour markets will not be affected as severely as expected, and the Bank predicts economic output will return to pre-Covid levels at the beginning of 2022, instead of mid-2022, as the Bank predicted in June.

The less negative outlook in France and some other eurozone economies may ease pressure on the ECB to provide more stimulus. The ECB kept its policy unchanged during its meeting last week, stressing that a stronger euro could make it difficult to achieve the Bank’s inflation target.

The Bank of France data showed that economic activity in August was only 5% below pre-crisis levels, after a July shortfall of 7%. The Bank expects a slight change in September, which means a recovery in GDP of about 16% in Q3 after a drop of 13.8% in Q2.

The Bank added that the loss of activity will shrink further in the last quarter to between 3.5% and 4%, and indicated that with France expected to lose about 800,000 jobs in 2020, unemployment will start to decline from its highest level of 11.1% in early 2021 and fall below 10% in 2022.

The Bank also revised expectations for the harmonised inflation index to 0.5% in 2020, 0.6% next year, and 1% in 2022. However, the Bank also warned that its forecasts are surrounded by uncertainty around the future trend of the pandemic, with today reporting more than 10,000 new cases, the largest daily increase since the end of lockdown.

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