French CB says economy to take two years to recover from slump

France’s economy will take two years to recover from its worst post-war recession, triggered this year by the coronavirus outbreak, the central bank (CB) said.

The eurozone’s second-biggest economy is on course to contract 10.3% this year, before it bounces back with growth of 6.9% in 2021 and 3.9% in 2022, the Bank of France forecast.

Nearly one million jobs are likely to be shed this year and unemployment could climb to a new record of 11.8% in the first half of 2021.

The central bank said the outlook could be brighter if the virus is quickly brought under control, while a second wave of infections could plunge the economy into a 16% downturn this year followed by growth of only 6% in 2021 and 4% in 2022.

The forecasts did not take into account the potential impact of a recovery plan that the government aims to announce in the coming months.

President Emmanuel Macron put France under one of the most stringent lockdowns in Europe in mid-March, effectively shutting down large swathes of the economy until restrictions began to be lifted on May 11.

As of the end of May, economic activity was still running 17% below normal levels, though up from the 32% reduction seen during the first two weeks of lockdown in March, the central bank estimated. Business surveys suggested activity could get back to less than 12% of normal levels this month, it added.

Nonetheless, the time spent under lockdown meant that the economy probably contracted 15% in the second quarter from the previous three months, when it had already slumped 5.3%, the Bank of France estimated.

France will spend an extra billion euros on a programme to boost apprenticeships in French companies as part of new measures to soften the impact of the coronavirus crisis on employment.

The extra state support for the apprentice scheme - one of the government’s unsung successes before the crisis hit - was announced after President Emmanuel Macron met with trade unions and employers at the Elysee palace.

“We had historic growth in apprenticeships. We can’t sacrifice the young generation,” Labour Minister Muriel Penicaud said after the talks.

State support for hiring apprentices under 18 years of age will be raised to 5,000 euros from 4,125 euros and for apprentices 18 years or over to 8,000 euros from 5,125 euros.

France is keen to avoid a wave of layoffs and is also betting on a German-inspired scheme to financially encourage firms to keep workers on their books, reducing their hours instead of cutting jobs.

“What’s at stake is to save jobs and skills,” Penicaud said, adding that the terms of the new scheme will be unveiled within two weeks.

Keeping workers in their jobs, even with reduced hours, would help preserve skills and allow for a quicker rebound once demand for French products picks up again, presidential advisers say.

Macron moved quickly to transform the job market in the first years of his presidency, making it easier to hire and fire workers in a bid to cut an unemployment rate that had historically remained high even in good times.

His aim, before the coronavirus crisis, was to bring it down to 7% by the end of his mandate in 2022. Containing the rise in unemployment will however be a key factor in Macron’s possible re-election bid.

France’s private insurers would provide business-interruption cover of up to 2 billion euros ($2.2 billion) a year in total for small companies hit by the fallout of any future pandemics, under a system proposed by the industry body.

The proposals, which would not apply to the current crisis, are aimed at helping 2.9 million small and mid-sized companies to cover some losses should they be required by the state to shut down their businesses if disaster strikes again.

The plan follows confusion and recriminations around the world as the COVID-19 pandemic has blindsided governments and insurers. Businesses facing unprecedented lockdowns have struggled to claim back massive losses from an industry that may not be able to cover them.

Insurers in the United States and Europe, facing political pressure and lawsuits from clients, are discussing with authorities new ways to cover future crises.

Existing French business-interruption policies usually cover revenue losses stemming from some physical damage, such as fire. They typically either exclude or do not specifically cover a pandemic.

Under the proposed mechanism, known as CATEX, private insurers and reinsurers would provide coverage of up to 2 billion euros annually to businesses overall, beyond which the state would step in via public reinsurer CCR.

Reuters