France sees the economy double-dip but house prices rise

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by Shaun Richards

A feature of these times is that official statisticians are struggling to give us accurate data about the state of play in our economies. The irony is of course that it comes at a time when people are keener that ever to know what is happening. An example of that has been seen in France this morning.

In Q1 2021, gross domestic product (GDP) in volume terms* fell slightly:  -0.1% after -1.5% in Q4 2020. It stood 4.7% below its level in Q4 2019, which was the last quarter before the Covid-19 crisis. ( Insee )

This was rather different to what we had previously been told.

 In addition, the estimate for Q1 2021 was revised by -0.5 points, mainly due to the inclusion of construction data, which was significantly less dynamic than the extrapolations used in the first estimate: the evolution of GFCF in construction in Q1 2021 thus fell from +5.1% to +0.6%.

There are a couple of consequences here. Firstly those who have followed my analysis of UK construction numbers will know that we have also had issues measuring this area. Next is that in the circumstances this GDP reading looks more realistic than the previous one and it has a consequence.

PARIS, May 28 (Reuters) – France, the euro zone’s second biggest economy, fell into recession in the first quarter of 2021 with a 0.1% contraction, revised official data showed on Friday.

Personally I think that the depression issue where the economy is 4.7% smaller than a year before is much more significant than any recession debate.

Looked at in the round the main pressure this time came from trade.

Imports remained relatively dynamic (+1.1% after +2.2%), while exports fell slightly (-0.2% after +4.9%). Imports were thus 6.9% below their pre-crisis level, while exports remained further away (-9.9%). Overall, the external balance contributed negatively to GDP growth: -0.4 points, after +0.7 points.

A feature of this depression has been the various furlough and support schemes which have supported incomes.

Gross disposable household income (GDHI) decreased slightly (-0.2% after +1.9%) but remained above its pre-crisis level (+2.3% compared to Q4 2019).

As the ability to spend has frequently been restricted this has led to quite a rise in savings being recorded overall.

As a result of the decline in GDI and the slight increase in households’ consumption (see above), the households’ savings rate declined: it stood at 21.8% after 22.7% in Q1 2021, but still remained well above its 2019 level (15.0%).

Household Consumption

The pattern here had seen a decline but had become stable in the first quarter.

Households’ consumption expenditure was almost stable (+0.1% after -5.6%) and remained well below its pre-crisis level (-6.8% compared to Q4 2019)

Sadly there was another large drop in April.

Household consumption expenditure on goods fell in April (–8.3% in volume* compared to March 2021). This fall was mainly due to the manufactured goods purchases (–18.9%), and was explained by the implementation of the third lockdown from April 3rd 2021 on the whole territory.

This means that the second quarter started badly in economic terms and the consumption depression strengthened.

Spending is thus 9.5% below its average level in Q4 2019.

A feature of the lockdown era has been the effect on the clothing industry.

In April, spending on clothing and textiles was halved (–50.2%), due to shop closures throughout the country.

So we move on with a weaker first quarter and a downwards shove from household consumption in April.

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Business Surveys

On Wednesday the official surveys were released and you will not be surprised to read that the retail sector liked the lockdown easing.

In retail trade (including trade and repair of vehicles), the business climate has gained 17 points, driven by the vigorous rise in the balance of opinion on the general business outlook for the sector, with in particular the reopening on May 19 of the so-called “non-essential” stores.

Ditto for the hospitality sector.

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In the services sector, the climate has gained 15 points, due to the sharp increase in most of the balances relating to the near future. It also has gone back well above its average. In particular, in accommodation and food service activities, the business climate has bounced back extremely sharply, probably driven by the schedule of gradual reopening.

These have helped drive an overall improvement in sentiment.

In May 2021, the business climate has improved strongly. The indicator that synthesizes it, calculated from the responses of business leaders in the main market sectors of activity, has gained 12 points. At 108, it has returned above its long-term average (100), for the first time since February 2020, and is even higher than before the health crisis (105).

This is a long-running series so that it has credibility from that although it is also true that the previous peak at the end of 2017 when it rose to just under 112 was followed by a decline rather than a rise in the GDP growth rate.

The Markit IHS puchasing managers survey for the first three weeks of May was also upbeat.

“The French private sector moved up a gear in May
as lockdown restrictions were eased and the
economy began to reopen. There was a clear
underlying improvement in demand as new work
expanded at the fastest rate in over three years,
while output expectations were the strongest since
the composite series was first available in July 2012.”

On the other hand the new restrictions on travel from the UK will certainly not help the tourism industry.

House Prices

The Bank of France will be pleased to see a concrete response to all its monetary easing.

In Q1 2021, the rise in prices of second-hand dwellings in France (excluding Mayotte) continued: +1.4% compared to Q4 2020 (provisional seasonally adjusted results), after +2.4% in Q4 and +0.6% in Q3 2020.

The quarterly rises have led to what are fairly stable annual increases.

Over a year, the rise in prices continued as well: +5.9%, after +6.4% and +5.2%. Since the fourth quarter of 2020, this increase has been larger for houses (+6.5% over the year) than for flats (+5.1%), which had not happened since the end of 2016.

The shift from flats to houses has also been seen in the UK and is a response to the lockdown era it would seem.

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If we look back there is scope here for fast promotion for a young central banker clutching their MBA or PhD. This is because house price growth in France went positive in 2015 just as the ECB fired up negative interest-rates and QE. Pointing that out will mean the croissant,espresso and baguette trolley will be a regular visitor to their desk.


It seems to be getting itself in rather a twist. Regular readers will recall it is supposed to be buying more bonds via QE under its PEPP programme, although the actual buying has fallen well short of the claims of Christine Lagarde. This is to reduce yields and restore what it considers to be favourable monetary conditions. Well apparently they are not what they used to be. Here is Isabel Schnabel yesterday.

Rising yields are a natural development at a turning point in the recovery: investors become more optimistic, inflation expectations rise and, as a result, nominal yields go up. This is precisely what we would expect and what we want to see.

Make your mind up. There was something worse there too.

I’ve always stressed that when it comes to favourable financing conditions, it’s insufficient to just look at the numbers.

There is a danger there of echoing Humpty-Dumpty.

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”
“The question is,” said Alice, “whether you can make words mean so many different things.”
“The question is,” said Humpty Dumpty, “which is to be master—that’s all.”


This has been a curious depression. Hopefully it will be a sharp relatively short-lived one but like the First World War it did not end by Christmas. There has however been quite a boom in asset prices. We have already looked at house prices but all the QE bond buying pushed bonds to record highs as well and even with the recent rises the ten-year yield is a mere 0.18%. The CAC-40 has surged to multi-year highs as well although not back to the level of September 2000.

The slow roll out of the vaccine has meant that France’s economy has stagnated again and ironically after all the debate is probably around level with the UK at the moment. Although the UK has been picking up relatively sharply. Let us hope that Bonnie Tyler was wrong about economic growth in France.

I was lost in France
In the fields the birds were singing
I was lost in France
And the day was just beginning


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