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the article to read to understand why France (like the rest of the world) is headed straight for recession

After China and Italy, it is France's turn to confine themselves to protect themselves from the Covid-19. Firms at a standstill, financial indices plummeting and uncertainty about the future … The country is inevitably heading towards a lasting decline in its growth. Franceinfo explains why.

“There is also an economic and financial war. It will be lasting, it will be violent”, warned the Minister of Economy Bruno Le Maire, Tuesday March 17. For several weeks, faced with the intensification of the coronavirus pandemic, the world economy has plunged into paralysis. Many companies have been forced to stop their production, the planes of the airlines of the whole world are nailed to the ground, the countries close their borders and the households – slammed at home – had to reduce their consumption.

The mess was anticipated on the financial markets. Faced with uncertainty, investors all started selling their assets (resources), causing market panic. From Paris to Wall Street, from London to Sao Paulo, the massacre reached its peak on March 12, where some stock exchanges, like that of Paris, recorded the worst sessions in their history, before rebounding at the announcement of the measures. aid taken by governments and central banks, then relapse. After going into general confinement in France on Tuesday, Bercy warns: l'Hexagon will plunge into recession this year. Concretely, what does this mean? What will be the consequences ? Should we worry about it? Franceinfo explains everything.

1First of all, what is a recession?

If we stick to the definition of the National Institute of Statistics and Economic Studies (Insee) in France, a country is in recession when it experiences a decline in its gross domestic product (GDP) – the index that measures the growth of a country – over two consecutive quarters. “The health crisis will inevitably cause loss of production and income”, warns Jézabel Couppey-Soubeyran, lecturer in economics at the University of Paris 1 Panthéon-Sorbonne. French GDP should already fall by 1% in 2020, far from the 1.3% growth forecast by the government before the virus appeared.

However, this situation had little to do with the economic crisis of 2008. The recession then had a financial origin linked to the collapse of “subprimes”, these home loans granted by American banks to households unable to repay them. However, the current crisis comes from an external shock, the Covid-19, which affects the entire real economy (business and household activity) and spreads as the countries become more caulked.

2What is the link between coronavirus and growth?

To curb the spread of Covid-19, the affected countries have taken strict restriction measures, going as far as general containment in Italy, Spain or France. Apart from certain essential sectors such as health or food, companies no longer produce, or less, and home buyers also buy much less. Consequence: the production of added value decreases and, logically, growth too.

In recessions, it's not that people buy fewer apples to buy more pears. People are buying less.Alexandre Delaigue, professor of economics at the University of Lilleat franceinfo

The secondary sector is particularly affected because industries and factories can hardly translate their activity into telework. The Michelin group has decided to stop production at its tire plants in Spain, France and Italy until March 22 at least. More than 20,000 employees are affected. Italian-American automaker Fiat Chrysler (FCA) also said it was closing “the majority of its European manufacturing plants” until March 27. In the aeronautics sector, Airbus suspended production in France and Spain for several days.

These difficulties were already felt long before the virus reached Europe. The shutdown of China – which is following the United States in place of the world's leading economic power – has caused severe turbulence in the economies of many countries, including France. “Our productions have become very dependent on outside, in particular China, where our companies are supplied with intermediate products or have their products assembled”, supports Jézabel Couppey-Soubeyran. China is indeed home to a large number of essential subcontractors in the production of products such as telephones, clothing or computers, recall The echoes. Clearly: when the “factory of the world” coughs, all the world production catches a cold.

3So we all risk losing our jobs?

Inevitably, there will be effects on employment, but it is difficult to assess the extent of this right now. Many businesses and the self-employed have ceased operations and some will have to close down. Airlines have already called for help to the government of their country hoping to be bailed out, as were the banks in 2008. US air transport has requested up to $ 50 billion in aid from the federal government and British companies, over $ 9 billion.

The sectors of activity are not all equal in the face of the crisis. “In recession, product production often drops, but if you need a car for a year, you will probably buy it the year after,” illustrates Alexandre Delaigue. However, it is more complicated for services.

Not everyone eating out now will eat three times as much at the end of the pandemic.Alexandre Delaigue, professor of economics at the University of Lilleat franceinfo

Can purchasing services and products online make up for the losses? A priori no. “People should keep their purchasing power, but that will not be the case for everyone. And to sell products online, you still need people in factories to make them”, explains Dany Lang, lecturer at Paris-Nord University, member of the dismayed Economists.

At this stage of the pandemic, the International Labor Organization (ILO) estimates that 25 million jobs could be lost worldwide.

4What can the state do to limit breakage?

To limit the damage, including cascading bankruptcies, the state will cover most of the business losses via an arsenal of 45 billion euros. The main part – 32 billion euros – will go through a postponement or cancellation of social security and tax charges for companies in March. For employees, a partial unemployment scheme and a solidarity fund of around 2 billion euros have been set up.

Small businesses, very small businesses (micro-businesses) and microentrepreneurs will benefit from a suspension of payment of their water, gas, electricity and rent bills. “If we are putting so much money on the table now, it is to help (the economy) recover quickly”said Bruno Le Maire. To protect the largest French companies, the minister even plans to participate, even nationalize “if necessary”.

To allow banks to grant loans to companies in difficulty after the crisis, the state will guarantee up to 300 billion euros in bank loans. And so that these banks have enough liquidity, the European Central Bank (ECB) has kept its rates very low (the key rate already being at 0% since 2016). The institution also unveiled a colossal plan of 750 billion euros for repurchases of private and public debt, six times more than the initial amount. Because, logically, the more a State spends, the more it goes into debt.

5Suddenly, the country may be bankrupt?

What is certain is that the coronavirus will squeeze the state budget and the consumption of the French. The decline in activity and spending to save businesses will further increase public debt, which already exceeds 100% of GDP, recalls The world. The public deficit is expected to climb to 3.9% of GDP and tax revenue is expected to be cut by 10.7 billion euros in 2020.

Household consumption, “the main channel through which coronavirus containment measures would affect the economy”, would fall by 2%, twice the projected reduction in GDP in 2020, according to the new finance bill published on March 18. To deal with this situation, “governments and central banks will have to closely coordinate their actions. Central banks will have to mobilize well beyond the measures mobilized during the subprime crisis”, estimates Jézabel Couppey-Soubeyran. “In the current situation, it is no longer just a question of facilitating credits, we will have to fill in shortfalls.” The researcher believes that central banks could notably cover the budgetary expenses that the States will incur.

We are in an absolute emergency, it's time to opt for exceptional solutions.Jézabel Couppey-Soubeyran, lecturer in economicsat franceinfo

“Central banks have already done a lot since 2008, they lowered their rates, bought rotten loans and debt … Now is the time for governments to act”, weights Dany Lang. “The problem is that we have expansionary monetary policies and restrictive fiscal policies. We are pressing the accelerator and the brake at the same time. It is not consistent.” On this subject, Emmanuel Macron warned: “We don't calculate when it comes to people's lives”. The European Commission has also gone in this direction. For the first time, it suspended its rules of budgetary discipline in order to allow EU states to spend as much as necessary.

6At the end of the pandemic, will growth start again as before?

It's unlikely. This will depend, among other things, on the government's long-term policies. A recession is not just a slowdown in production, it is also “destruction of production potential”, Recalls Jézabel Couppey-Soubeyran. Some companies produce less, but others, which are too fragile, disappear. “In these conditions, it is complicated to start growth again on its initial trajectory”, continues the economist.

If we take the example of China, which is slowly starting up again after being stopped for almost 50 days, activity has not resumed suddenly as before. “Part of the Chinese economy is based on exports, but since the importing countries are in turn stopped, there can be no trade”, describes Alexandre Delaigue. To ensure that the epidemic does not start again, it is also complicated to bring back tourists or foreign investors, who could be contaminated and restart the epidemic.

Perhaps at the end of this crisis, we will see that we can consume less and live just as well, that we can reduce dependencies between countries and that the financial markets are extremely vulnerable.Jézabel Couppey-Soubeyran, lecturer in economicsat franceinfo

For economist Dany Lang, this crisis is also an opportunity to completely rethink our economic model by taking into account the climate emergency. “After 2008, the worst crisis of capitalism after 1929, we left as if nothing had happened. In Europe, states continued to cut wages and base all growth on an unreasonable increase in private credit, as in Ireland, or on exports, as in Germany. We must now invest in the ecological transition. “

7I was too lazy to read everything, can you give me a summary;)?

France is currently going through an exceptional health and economic crisis due to the coronavirus pandemic. To stem the spread of the virus, it has implemented general containment. The savings are at a standstill, the companies are producing more or less, and the buyers are consuming less. The production of wealth in France will fall, which should inevitably lead to a recession (ie a decline in GDP over two consecutive quarters according to the definition of INSEE).

On the financial markets, these prospects have already brought down the indices, in Paris, New York and even Frankfurt. To avoid mass bankruptcies of companies and limit job losses, the government has taken several rescue measures. He announced a reduction – postponement or cancellation – of corporate expenses to the tune of 32 billion euros in the month of March alone, a short-time working scheme and has not ruled out nationalization. For its part, the European Central Bank will put 750 billion euros on the table to buy, among other things, the debt of the States.

Will these measures be enough? Difficult to say at the moment because everything depends on the duration of the pandemic. Some economists believe that this crisis could make it possible to completely review our economic model, and to include the climate emergency in the future.

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