France’s economy expects strong growth

Paris The consequences of the Covid pandemic hit the French economy harder than the German and the euro zone on average. But it apparently comes out faster: “I confirm our growth forecast of five percent for 2021,” said François Villeroy de Galhau, Governor of the Banque de France, on Monday the Handelsblatt. The forecast is “robust and rather cautious, always keeping the uncertainty due to the epidemic in mind”.

On Tuesday, the Banque de France published its updated estimate. The federal government recently lowered its forecast for Germany to plus three percent.

So France’s economy is resilient, but the French business model is at least partially in question. According to the latest available figures, the current account deficit has reached a good two percent of economic output (GDP) in 2020. This is the highest value since 1951. According to the latest estimate by the INSEE (national statistical office), GDP fell by 8.3 percent in 2020.

In the euro zone it fell by an average of 6.8 percent. In contrast to services, however, industry was just able to remain positive in the last quarter of 2020. INSEE points out that the generous state aid will support the activity in the current year as well.

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One of the toughest lockdowns

The French government reacted in the first half of the year with one of the toughest lockdowns in Europe, with a curfew, the closure of almost all shops and restrictions on work in offices and factories. As a result, the German neighbor lost almost a fifth of its economic output year-on-year in the second quarter.

The second factor: The Covid consequences hit two sectors more than average, on which France is particularly dependent, tourism and aviation. Aeronautics is one of the few sectors in which France is still enjoying export success, thanks Airbus and an efficient supplier industry.

Production here fell by almost half last year because travel restrictions in many countries have severely affected global air traffic and continue to do so.

The same applies to tourism. It is not declining as strongly as aviation – foreign tourism has been partially replaced by domestic tourists. However, this does not help the current account, which primarily balances the export and import of goods and services.

France traditionally offsets part of the deficit trade balance with a large surplus in services. That plus has shrunk dramatically in the past year, which explains the record deficit in the current account.

This is not just about information for gourmets in statistics. A minus in the current account leads to foreign debts. France needs foreign investors to finance its current standard of living. “Frankeich lives beyond its means”, states Emmanuel Jessua from the business research institute Rexecode soberly.


These foreign investors not only want to buy government bonds, they are also looking for the most profitable investments possible and come across the most interesting French companies. This resulted in attempts like that of Couche-Tard from Canada, the retail chain Carrefour to take over. Economics Minister Bruno Le Maire fended off this advance with energetic intervention.

But such interventions cannot be repeated indefinitely. The economy gives politics the scope for action. Anyone who is in the chalk in foreign countries loses their sovereignty. President Emmanuel Macron’s discourse on giving France and Europe more strategic autonomy is being devalued by the foreign trade deficit. On Sundays Macron preaches more independence from China, on Mondays China Eastern comes and wants his participation Air France-KLM Huawei is increasing or building a plant in Alsace.

Because the classic export engines of aviation and tourism have become vulnerable, France must strengthen new sectors. Le Maire is increasingly focusing on “promoting new activities such as the production and recycling of batteries for e-cars and the development of a hydrogen economy”.

The announcement of Liquid air and Siemens from Monday to cooperate in the production of green hydrogen in high-performance electrolysis plants and to “apply together for large projects within the Green Deal of the EU and the IPCEI” goes exactly in this direction. The IPCEI is understood to mean large projects of common European interest, which are funded by France and Germany.


In addition, the government is trying to act more skillfully in the race between restrictions to contain the epidemic and protect the economy. The significantly lower impairment of activity during the second lockdown in the fourth quarter of 2020 (minus five percent, while it was minus 18.8 in the second quarter) shows that it is successful: “These differences between two lockdowns can be explained by the Explain the difference in the severity of the measures, on the other hand, by an adapted supply and demand behavior, ”says Bruno Cavalier, chief economist at Oddo BHF.

Research by the Banque de France and INSEE showed “that the shock is now having a much stronger impact on a smaller number of sectors than it was in the spring”.

The gap between rich and poor has widened

In the past few days, Macron has called off or at least postponed a third lockdown, for which medical experts and some ministers had spoken out. The 14-day incidence (number of new infections per 100,000 inhabitants) according to the latest figures from the EU authority ECDC is 427 in France and 218 in Germany. In contrast, the number of deaths per million inhabitants in France is 86, in of the Federal Republic at 126.

The president has in mind that he must not torpedo the growth hopes for 2021 through the Covid restrictions. The Banque de France estimates GDP growth this year at five percent, but the latest estimate on Tuesday is unlikely to change much.

Macron sees that the gap between rich and poor in France has widened as a result of the Corona measures. He is accused of making a policy solely for the French on the sunny side of life and of forgetting those in the shadows.

Macron, with a firm eye on the 2022 elections, now wants to counter this more strongly. Not only through growth-friendly policies, but also through new initiatives for young people from poor families. In the course of the week he wants to announce better prospects for them, such as easier access to the elite schools and the high administration of the country as well as steps against racial discrimination. Combating Covid, protecting the standard of living and electing – this results in a complicated system of equations for politicians, in France as in Germany.

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