Country reports France COVID-19
France has had one of the highest rates of COVID-19 cases and deaths in the EU, after three large waves in March and October 2020, and in the spring of 2021. Like most European countries, France provided a ‘chômage partiel’ furlough scheme for workers in businesses that were forced to close or limit operations during the pandemic, in effect socialising the worst of the pandemic’s economic costs. Due to that sizeable third wave, in April the Banque de France cut its growth forecast for 2021 from 6 per cent to 5 per cent. With the French economy shrinking by 8 per cent in 2020, this means that it is unlikely to recover its pre-pandemic level until mid-2022.30 France’s vaccine rollout has been rapid. Despite the EU’s mis-steps with procurement, and early polls showing fewer than half of French people would take the vaccine, vaccine uptake has steadily improved, especially after the government made vaccine passports mandatory to enter bars and restaurants.31 Nonetheless, the delta variant’s infectiousness means that very high levels of vaccine coverage may be needed to prevent a resurgence of the virus in the winter of 2021-22.
Long-term economic performance
France went into the pandemic with a reasonably balanced current account, and a low public deficit, and it has had little trouble financing the big jump in its deficit as a result of its pandemic-related spending. While it has high productivity levels – similar to northern Europe and the US – France has struggled with low productivity growth since 2008, with GDP per hour worked growing by 0.5 per cent a year on average. Like many advanced economies, some combination of the freeze in the banking system, tight monetary policy, tight fiscal policy, a reduction in the rate of productivity-enhancing
30: ‘Macroeconomic projections’, Banque de France, June 2021. 31: ‘COVID-19: Les français ont de plus en plus confiance dans la vaccination’, Le Monde, May 21st 2021.
innovation, and falling expectations by investors about future demand meant that growth has disappointed. In the fourth quarter of 2019, France’s unemployment rate was high, at 8.5 per cent, which is a little lower than President Macron believes its ‘structural’ unemployment rate to be.32 France imposes high tax rates on employers, including taxes on value added and higher social contributions once firms have hired a certain number of employees. It has fairly strict worker protections, and relatively generous unemployment benefits. As a result, France has a higher rate of unemployment than many other countries. However, it is not yet clear whether France will suffer from a long period of higher-than-usual unemployment as a result of the pandemic. Thanks to its furlough and short-time work scheme, as well as the reopening of the economy after lockdown, in August 2021 unemployment stood at 8 per cent – lower than its pre-pandemic rate (which had been its lowest rate for over a decade). But as the furlough scheme is unwound, France’s relatively static labour market is a source of potential weakness. Over the 2010s, France’s businesses created new jobs more slowly than those in Germany and the UK. Chart 5 plots the vacancy rate (how many jobs are advertised as a share of the total labour force) against the unemployment rate. Germany and the UK create more new jobs, which (in combination with less generous job protections and unemployment insurance) lead to more people working. This relative lack of dynamism in the labour market meant that France was slower to recover its pre-2008 employment rate than Germany, Poland or the UK: it took until 2017 to do so (Chart 6). With more static labour markets, it takes time for shocks to particular sectors of the economy to lead to workers moving to other roles.
32: ‘Macron says French structural unemployment rate of 9 per cent is scandalous’, Bloomberg, February 13th 2018.
WHY THE EU’S RECOVERY FUND SHOULD BE PERMANENT November 2021
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