A French Kiss In The Fog.

“The GDP contraction in the first quarter of 2020 is estimated around -6%”, the Bank of France lamented on Wednesday, in a study quantifying the economic impact of the containment measures put in place across the country to help stop the spread of the coronavirus, which has claimed more than 10,000 French lives.

“Each fortnight of confinement leads to a loss of annual GDP close to -1.5%”, the bank estimates, before dryly noting that “for the record, our previous quarterly GDP growth forecast for the first quarter, published a month ago with the February business survey amounted to +0.1%”.

That’s quite a difference – from a 0.1% expansion to a 6% contraction, all in the space of just 30 days.

The forecast means the hit to the French economy is, for all intents and purposes, unprecedented in modernity, although I suppose that depends on one’s definition of “modern”.

“We have to go back to the second quarter of 1968, marked by the events of May, to find a quarterly decline in activity of the same order of magnitude”, the bank said. (The reference is to a famous period of civil unrest.)

The bank admits that the estimate “does not have the same precision as our usual estimates”, but says it’s still useful in terms of trying to wrap one’s head around what it calls “the order of magnitude”.

France’s services sector collapsed in March, along with similar declines seen across Europe, where the coronavirus has infected hundreds of thousands, compelling governments in Italy, Spain, France and Germany (among others) to institute near total lockdowns, crippling economic activity.

“March PMI data painted an ugly picture for the French service sector, with output and new business falling at record-pace amid shutdowns due to the coronavirus”, IHS Markit said last week. “The results were similar in the manufacturing sector, leading to a historic decline in private sector activity. Moreover, the difficult situation is set to continue with widespread lockdowns expected to remain in place until infection rates are quelled”.

As Bloomberg notes, “the Bank of France had to change its way of measuring to try to get a grasp on the tumult” just as Insee, the country’s statistics agency, got “creative” in their own measurements.

Insee utilized high-frequency data like card transactions to come away with an estimate that 35% of the economy was shut.

“Published on March 26, the efforts struck a chord with private sector economists, and the 35% estimate has been cited in multiple research reports”, Bloomberg wrote, in a separate piece documenting Insee’s efforts.

The Bank of France employed similar methods in their study, pegging the loss of activity at 32%.

ING’s Julien Manceaux had this to say about Insee’s methodology:

INSEE has therefore, for the first time, used new methods, many of them qualitative, to estimate the loss of activity by sector during the first week of lockdown, as well as the loss of demand by sector of activity. Both approaches (production and expenditure approaches) point to an economy operating at 65% of capacity… They may be partial, but these are awful figures nevertheless.

It is obvious that this estimate is bound to evolve over time, but it nevertheless already offers more precise information on what is happening – an extraordinary light in the thick economic fog in which we must have the honesty to admit we are all immersed. 


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