Ft: French economy set to contract less than feared

David Keohane in Paris

France's economy is set to shrink less than expected in 2020 after bouncing back as lockdown measures aimed at stemming the Covid-19 pandemic were eased.

The rebound from early May means that the eurozone's second-biggest economy is on course to shrink 8.7 per cent this year, but less than the 10.3 per cent the central bank had forecast in June.

The economy is set to expand 7.4 per cent in 2021 and 3 per cent the following year, meaning a recovery in output to pre-Covid 19 levels by the first quarter of that year.

"We are one to two quarters ahead on the pace of the recovery, and France will get back to pre-Covid level a little before the European average," said central bank governor François Villeroy de Galhau told newspaper Le Monde on Monday.

"Three sectors in particular did better than expected: the automobile sector, which has improved significantly, accommodation and food services - albeit at a still low level - and construction," he added. "This sector is at 100 per cent of normal in August, with a number of players even above the pre-crisis level of activity."

The central bank estimates that economic activity is back to just 5 per cent below normal levels. It does not expect much to change in September, assuming France does not face another lockdown, and has pencilled in a rebound of 16 per cent in the third quarter, compared with the 13.8 per cent contraction seen in the quarter before.

The bank estimates unemployment will peak at 11.1 per cent in early 2021 before declining to below 10 per cent the year after.