An announced rebound in the French economy in 2021; enough to replenish the coffers? – EconomyMorning

Will the year 2021 be full of promise? Last week, a wave of optimism seized the financial markets after the announcement by the IMF of a French growth forecast at 5.5% of GDP for 2021. Financial news seems to see France at the end of the tunnel, but is it possible to really hope for an improvement in the economic situation this year? Can the improvement planned for 2021 alone get France out of the post-Covid economic turmoil?

A very timid resumption of growth

The IMF announces growth of 5.5% of the GDP for 2021: this is less than the 6% which was announced in October 2020. In return, the contraction of the economy in 2020 was less (9% against 9.8% expected). France has been less affected than some of its European neighbors, but its recovery also promises to be slower and less spectacular.

What explains this timid recovery? Among the main culprits: the slowness of the deployment of the hexagonal vaccination as well as the fear linked to the new variants of the virus discovered recently, which only increase the climate of uncertainty in which the markets have been plunged for nearly a year. The IMF, however, cautiously believes that France should be able to get by and start on the upward slope again by implementing a medium-term fiscal consolidation plan now.

One thing seems certain, 2021 will not be the year of short-term fiscal austerity, for several reasons. First, because the timid recovery of the economy will not be enough to absorb the extent of the expenditure on the recovery and rescue of the French economy implemented by the government.

Then, because despite promising developments; the arrival of the vaccine which brings a little stability to the global, the solid foundations laid by certain sectors little shaken by the crisis and the long-awaited recovery of the sectors most affected by the Covid-19 pandemic, experts agree that at least 2021 will have to pass before considering the repayment of the public debt abyss caused by the global pandemic.

Growth in 2021: the tree that hides the forest?

The recovery should therefore be gradual and entirely dependent on the development of the vaccine and the continuation of the government’s expansionist policies in terms of public aid.

But the crisis will leave traces in households. 2020 recorded a historic record for savings in France which can be explained by two main factors: the lack of opportunities to spend given the repeated confinements and the many non-essential businesses closed. The second reason is psychological: households, plunged into uncertainty, preferred to save and avoid risks.

And unfortunately for the recovery of the economy, this fundamental trend could well last: consumer spending should indeed remain lower than during the pre-crisis period, and the labor market will need time to recover: and beware of the damage when France ceases its policies of aid to companies.

For investors, the IMF announcements are a pretty good sign in the short term. However, with relatively low inflation, a more than uncertain recovery given the new variants, the delay in vaccination and the high levels of public debt, central banks are unlikely to raise interest rates and will certainly avoid raising yields, which could potentially harm the recovery in the medium term and the recovery plan desired by the IMF.

If 2021 may finally look like a good year on paper thanks to government aid, the post-Covid revival of certain industries and the rise of sectors that benefited from the crisis, it could well be the last. In question, the general reluctance, the growth of savings to the detriment of the economy and, of course, an inevitable policy of tight fiscal adjustment which should very clearly flatten the growth curve for several years to come.

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