France’s central bank estimates first-quarter GDP shrunk 6% from previous quarter

(C) Reuters. FILE PHOTO: Paris during a lockdown imposed to slow the spread of the coronavirus disease (COVID-19)

By Leigh Thomas

PARIS (Reuters) – France’s economy likely contracted 6% in the first quarter from the previous three months as a nationwide lockdown due to the coronavirus outbreak shut down vast swathes of the economy, the central bank estimated on Wednesday.

That would be the biggest contraction on a quarterly basis since World War II, surpassing the previous record of -5.3% in the second quarter of 1968 when France was gripped by civil unrest, mass student protests and general strikes.

France has been subject to stay-at-home orders since March 17 that officially end on April 15, although the government has warned they could very well be extended if judged prudent.

A typical week of confinement in March saw economic activity reduced by nearly a third, the central bank said in an analysis of the economic fallout from the outbreak.

In light of such low levels of activity, every two weeks the country spends in lockdown could reduce annual economic activity by 1.5 percentage points, the Bank of France estimated, on par with projections from the INSEE official statistics agency and independent think tanks.

The government launched a 45-billion-euro ($48.8 billion) economic rescue package last month consisting mainly of deferred tax payments and has offered to guarantee up 300 billion euros in loans to cash-starved companies.

The government has estimated the budget deficit would swell to more than 3% of economic output this year as a result, and Bank of France Governor Francois Villeroy de Galhau said each two weeks in confinement added a percentage point to the fiscal shortfall.

“All that will have to be paid for but now is not the time to count,” Villeroy said on RTL radio.

It came to its conclusions drawing on feedback from its monthly business climate survey that canvassed 8,500 companies from March 27 to April 3 about their activity and outlooks.

Executives responding to the survey said industrial capacity utilisation was running on average at a historic low of 56% in March, down from 78% in February. By sector, the automobile industry had the lowest utilisation rate of 41%.

Industrial companies lost on average five business days in March while companies in the service sector had to shut on average six days. For the restaurant industry, the figure ran as high as 14 days.

With business activity sharply reduced, companies reported a jump in demand for credit.