Economic Prospects for France for 2021

Economic Prospects for France for 2021

France like most western countries ended the year 2020 with a shrinking economy. The GDP had declined by 9.5% at the end of 2020. This was the direct impact of the COVID-19 lockdowns. However, COVID-19 vaccines are being rolled out and 2021 is likely to be the year of economic recovery.

France is the fifth-largest economy in the world.  The service sector is the largest contributor to the country's economy being responsible for about 70% of its GDP. The country is also known for its vibrant manufacturing sector. It is one of the global leaders in the manufacture of automobiles, aerospace products, railway products, cosmetics and a wide assortment of luxury goods.

However, its heavy reliance on the service sector means that the country was severely affected by the pandemic lockdowns. As the world's most visited county the COVID-19 lockdowns completely shut down the country's tourism sector and all other service sectors that rely on tourism. The lockdown also slowed down manufacturing and affected all other spheres of France's economy. This resulted in a decline in the country's output.

Although the lockdowns have been eased and the economy is on its path to recovery, the pandemic risks still linger and will likely affect the economy going forward. However, as the economy opens up production is likely to resume pushing the country to record level growth.  Still, some risk factors remain. These risk factors include:

Security Risks

France has suffered from some security attracts and social unrest such as the "yellow vest" movement in the recent past. As a service reliant economy, such attacks have a negative impact on its bottom line. As the government navigates the delicate COVID-19 pandemic some of these security threats may derail the economic recovery efforts. However, it is clear that the country's security agencies have been developing a raft of measures to make sure that they can respond fast to any emergency and they keep everyone safe.

2022 Elections

While 2021 is not an election year in France, the 2022 elections are likely to be on the mind of every politician and policymaker in the country. This can be a risk as it will affect decision making regarding the recovery efforts. The president will be up for re-election in 2022 and this is likely to shape is agenda going forward.

Uncertain consumers Behavior

The year 2021 is expected to be the year of economic recovery.  However, a sharp rebound is not expected. This is due to a number of factors. First, the pandemic shut down the service sector and as a leading tourism destination, it is clear that not many people across the globe are ready to start traveling. This means that most service sector business that relies on travelers will take time before they recover. In addition, the pandemic affects the income of many people across the country. Local expenditure and investments are likely to remain lower for longer which will affect consumer behavior and therefore the recovery.  As we move forward, the fear of a new variant of the virus or even a surge in infections will still linger.  While the government works on the rolling out the vaccine and other measures to stimulate the economy, personal fears and the resultant consumer behavior are likely to affect the rate of recovery.

It is clear that the pandemic is coming to an end as governments across the world roll out vaccines.  We should therefore expect that the French economy to recover in 2021. However, a more dynamic recovery should be expected in the second half of 2021. The first half will remain slow as consumers remain cautious as to the effectiveness of the vaccines being rolled out and to news of newer variants of the virus. Furthermore being a service-based economy it will take time before consumers have the confidence to go back to life before the pandemic.  It is forecasted that the GDP will grow by about 4.7% in 2021.

Contact Us