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French economy slips into recession in Q1 on revised data

By Andrei Chirileasa

08:59, 28 May 2021

French flag (blue-white-red) with euro bills in the background

The gross domestic product (GDP) of France, the second-biggest economy in the European Union (EU), decreased by 0.1% in the first quarter of 2021 compared to the previous quarter, according to revised data released on Friday by the French Institute of Statistics – INSEE. The French economy consequently slipped into recession after a 1.5% quarterly drop in Q4 2020.

The Q1 GDP figure released on 28 May was revised significantlydownward compared to the initial level reported at the end of April, which indicated that France’s economy grew by 0.4% in the first quarter. The revision was mainly prompted by lower than initially estimated growth for the construction sector (0.5% compared to 4.2% reported initially) and a steeper decline for the services sector (-0.8% compared to -0.6% initially).

On the bright side, production in the French manufacturing industry was down only 0.4% in the first quarter compared to Q4 2020, not 1.2% as previously estimated. Still, weaker exports dragged down economic growth in the negative territory.

Quarterly GDP down 4.7% compared to pre-pandemic level

The French economy is still struggling to recover to pre-pandemic levels, after a 5.9% decline in Q1 2020 followed by a 13.2% drop in Q2 and an 18.5% rebound in Q3. In Q1 2021, the French GDP was still 4.7% below the reference level from Q4 2019, before the pandemic hit Europe.

“Given the strong economic fluctuations in recent quarters, evolutions from Q4 2019 may be considered as reflecting the activity better than quarterly fluctuations,” the French statistics institute said in its quarterly statement.

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Full recovery expected in 2022

The European Commission’s Spring Forecast indicates 5.7% growth for France’s economy this year, followed by 4.2% in 2022. “France’s GDP growth is set to gain momentum in 2021. Economic activity is forecast to rebound gradually, particularly in the second half of the year when restrictions should be eased, and supported by the recovery plan ‘France Relance’. In 2022, all demand components are set to exceed their pre-crisis levels, with total activity standing around 1 pp. higher than in 2019,” reads the EC’s forecast.

In early April, French finance minister Bruno Le Maire cut the country’s economic growth forecast for this year to 5% from a previously estimated level of 6% after the government imposed another lockdown to counter the rise in COVID-19 cases.

French stock market index close to all-time high

In spite of the bumpy recovery, the French stock market has continued its positive evolution in recent weeks. The CAC 40 index, which follows the biggest listed French companies, was up 0.4% on Friday morning at 6,462 points. It recently surpassed its 2007 peak and is closing in on the all-time high set in August 2000.

Year-to-date, the French index is up 16.4%, beating Germany’s DAX (+12.9%), the S&P500 (+11.8%) and the UK’s FTSE 100 (+8.9%).

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Read more: German economy contracts due to coronavirus

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