ANALYSIS: How bad will the post-coronavirus economic shock be in France?

The worst may not be over when the coronavirus crisis has passed, economists have warned. Here's a look at what France can expect as it enters a recession likely unseen since World War II.

ANALYSIS: How bad will the post-coronavirus economic shock be in France?
French Economy Minister Bruno Le Maire negotiates with European partners on what EU measures to take during the coronavirus crisis. Photo: AFPPhoto: AFP

France – along with several other European countries – has been forced to temporarily freeze large parts of its economy to limit the spread of the virus.

Since noon March 17th, France has been on a strict lockdown with most outside activity strictly forbidden.

The lockdown will likely be extended into May and French President Emmanuel Macron is to address the nation in a televised speech this evening.

“The economic recovery will be long, difficult and costly,” said France’s Economy Minister Bruno Le Maire on April 9th, as he announced that he would double the emergency budget to exit the crisis. 

France, like many of its peers, has chosen swift and hands-on state action to alleviate the economic losses caused by the health crisis.

They know that inaction from the state side could risk fatal economic impacts, with businesses going bankrupt and hundreds of thousands of people losing their jobs.

But there is only so much the state can do. Here’s a look at what lies ahead.

READ ALSO Will Macron be able to reawaken the sleeping French economy once lockdown ends?

France's Economy Minister Bruno Le Maire. Photo: AFP

How bad are things going to get?

As it stands, France’s GDP is expected to drop by 6 percent in 2020. Most economists agree that France is set for its biggest economic downturn since 1945. 

“There’s an overall consensus among economists that the recession will be worse than in 2008,” said Anne-Laure Delatte, an economist who works as a researcher at the French institutes CNRS (Centre national de la recherche scientifique) and CEPII (Centre d’études prospectives et d’informations internationales).

The 2008 crash – the most powerful jolt to the global financial system in modern times, with disastrous ripple effects on national level – was caused by the real estate bubble bursting, pushing the world banking system to the brink of collapse.

This time, the shock to the economy is caused by something more tangible – the nationwide lockdown which has halted vast numbers of the country's businesses.

 “People stop consuming and companies stop investing. It’s a vicious circle that amplifies the crisis and makes this a problem that is very difficult to address, ” Delatte said.

The lockdown

While economists disagree on many things, they agree that the main factor determining the magnitude of the economic crisis is how long the lockdown will last.

“Every month of lockdown costs us 2 to 3 percent of our GDP,” said Christine Lagarde, President of the European Central Bank (ECB), last week during an interview with France Info.

While last week brought some first positive news on the coronavirus numbers, it’s still too early to say when things will start to go back to normal. France does not yet have a concrete plan for the déconfinement (unwinding of the lockdown). 

And it's not only when but how the government ends the lockdown that will impact the economic downturn.

“If it’s done by age group and an extended period includes only those over 65 years old, the economic impact won’t be that significant,” said Xavier Timbeau, the Director of the French Observatory of economic conjunctures (OFCE), in an interview with Le Monde.

“But if (a continued lockdown) includes those over 50, it’s a very different story.”

At the same time, ending the lockdown too early could cause a backlash. A potential second wave of coronavirus cases could force the government to establish a new round of lockdown measures. 

 The EU last week declared that it would provide more than €500 billion in emergency aid to its member states. Photo: AFP

Government aid

Crucial in limiting the size of the crisis are the measures the French government has set in place during the lockdown. 

“It’s like an athlete who has to suddenly stop training and see all their muscles degrade,” Christine Lagarde told France Info.

“We need to continue working out a little every day so that we easily rebound the day we’re able to train again.”

As a metaphorical home exercising kit, the government is providing French businesses with emergency compensation funds, a €300 billion programme of state-backed loans for big companies and direct grants of €1,500 and €2,000 a month for small businesses and the self-employed.

To avoid mass layoffs, businesses may ask for chômage partiel (partial unemployment) for their employees. Over 6 million workers had registered for this scheme on April 8th.


On Thursday, the EU agreed on a €540 billion emergency plan to keep their countries afloat during the health crisis. The EU agreed to continue the countries’ partial unemployment or furlough schemes and some €25 billion will go to the European Investment Bank to ensure that it continues to give loans to businesses.

“There is more money on the table today than in 2008,” Delatte said.

Still, she said, it was not enough.

“The stimulus plan in France could be more aggressive,” she said.

France has put 4 percent of its GDP ready to compensate for the economic losses. In comparison, Germany has dedicated 4.9 percent and the United States 11 percent of their GDP.

What about the debt? 

On the other hand, a more generous crisis package would lead to more debt after the crisis. Freezing down entire economic systems and then paying for it, straight out of the government’s pockets – all this is costing a lot of money. 

All countries worry about repelling investors because they need to raise money on the international market. 

“The debt will reach 112 percent of our national wealth,” Economy Minister Le Maire told Europe 1.

Getting rid of this debt will be a major challenge after the health crisis.

“One solution is sharing the debt between the eurozone to increase credibility among investors,” Delatte said. “If we work alone, we won’t manage.” 

While the French government has not yet laid out a plan, Bruno Le Maire had said that the economic rebound will be “a joint effort by all the French.”

Geoffroy de Roux de Bezieux, the president of MEDEF, the group representing employers, has said employees must prepare to work more than usual.

“Sooner or later, we will need to ask if (..) by working a little more, we can create additional growth,” he said

Maximum work hours, public holidays and paid vacation should all be the table, according to the MEDEF president – something that is unlikely to go down well with French unions.

But Gérald Darmanin, Minister of Public Action and Accounts, has shown reluctance towards a plan based on increasing taxes. The French are already the most highly taxed nation in Europe.

“I don’t think more taxes is the solution to the crisis,” he said.

'This is a matter of political will'

Delatte said France should have the debate on how to tackle the inevitable debt crisis sooner rather than later.

“We’re facing a massive health crisis and the debate on taxes would probably better reflect the society’s needs right now than in six months, one year when we’re hit by a new financial crisis,” she said.

If there was one thing the coronavirus should have taught us, according to Delatte, it was that the health sector – often viewed as a sector that vacuums public money – actually played a crucial role as a buffer to an economic crisis.

Countries with a robust health system like that of Germany will have less serious effects than those with a more fragile healthcare sector.

“When we stand in the middle of the economic mess, it will be difficult to resist spending cuts on things such as the health sector,” she said.

“We know how to address the economic crisis. This is a matter of political will.”

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Revealed: What will you receive from France’s €65bn cost-of-living aid package?

The French parliament has finally passed a massive €65 billion package of measures aimed at helping French residents with the spiralling cost of living. Here's a rundown of the help on offer, who it's available to and when it comes into effect.

Revealed: What will you receive from France's €65bn cost-of-living aid package?

After three weeks of sometimes heated debate, France’s parliament has adopted its multi-part purchasing power package to help mitigate rising cost of living and inflation.

In total, parliament approved a budget of nearly €65 billion for the whole package. 

It includes a raft of measures including price shields, tax rebates and grants. Here’s what is included and who will benefit.

Electricity and gas The government has voted to extend the tariff shield on gas and electricity prices until the end of the year: this means that gas prices will continue to remain frozen and that price hikes for electricity prices will be capped at four percent. 

For who: This applies to everyone who has a gas or electricity account in France.

When: The price freeze is already in effect and will continue until at least December 31st.

Fuel subsidy – The government’s fuel rebate (on petrol/gasoline and diesel) will be increased from €0.18 per litre to €0.30 in September and October, and then in November and December it will fall to €0.10. 

For who: All drivers (including tourists) – this is applied automatically at all fuel stations in France

When: The €0.18 per litre rebate is already in place and remains until August 31st, and rises to €0.30 on September 1st.

Pensions – The index point for pensions will be raised by four percent.

Who: This covers anyone who receives a French pension – roughly 14 million people – it does not affect anyone who gets a pension from another country.

When: From September 9th. 

Abolishing the TV licence fee – The annual TV licence raised €3.7 billion a year for public broadcasting, with the majority having gone toward France Télévisions, but has now been scrapped. It was €138 per household. 

For who: Any household with a television. This equates to about 23 million households in France who will no longer have to pay this yearly tax.

When: The was due to be levied on November 15th, but this year no bills will be sent out.

Tripling the Macron bonus – The maximum annual bonus – which is exempt from income and social security taxes – will be tripled.

It is a one time, tax-free payout that can be given to workers by their employers – if they chose to. Companies will now be able to pay up to €3,000 to their employees (and up to €6,000 for those with a profit-sharing scheme).

Who: This pertains to salariés (employees) whose businesses choose to offer this bonus.

When: The bonus can be paid between August 1st and December 31st.

Rent cap – Rent increases will be limited to 3.5 percent per year for existing tenants. Some cities already have in place their own rent control schemes, but the 3.5 percent cap is nationwide.

Who – This affects anyone who already has a tenancy agreement for a property in France (and also affects all landlords who are banned from making big rent hikes).

When – The 3.5 percent cap concerns annual rent increases that fall between July 2022 and June 2023.

Housing allowance – Those who benefit from personalised assistance for housing (APL) will see that increased by 3.5 percent.

Who: This pertains to those who qualify for governmental financial assistance with rent. Typically, this means low-income households. If you are already on APL – around 3.5 million people – the increase will be automatic, if you think you might qualify, apply through your local CAF.

When: The increase comes in your next payment, with the increased rate backdated to July 1st 2022.

Social benefits – The RSA top-up benefit will be increased by four percent (local authorities, who deal with RSA, will receive €600 million to help them finance and allocate this increase). Additionally, those who benefit from the ‘prime d’activité‘ (activity bonus) will see that value raised by four percent as well.

Who: Unemployed people below the age of 25 can qualify for RSA – this pertains to about 1.9 million people in France. The activity bonus is available to low-income workers – about 4.3 million people.

When: Catch-up payments will be in place from August 18th to September 5th. On September 5th, the updated payment will begin to be paid out.

Student grants – An increase of 4 percent for student grants (bourses) for higher education

Who: Students under the age of 28 who qualify for financial assistance in the form of grants. These students must qualify as ‘financially precarious’ for the school year of 2022-2023.

When: September 2022

Back-to-school grants – Families who meet certain income requirements are eligible for an allowance to help cover back-to-school costs – that grant will increase by four percent this year. There will also be an extra €100 subsidy for eligible families (with an additional €50 per child) paid “to those who need it most” according to Finance Minister Bruno Le Maire in an interview with RTL. 

Who: Low-income families with children. You can test your family’s eligibility on the website This aid will impact 10.8 million households.

When: The one time payment will be paid at the start of the school-year in September.

The option to convert overtime days into extra cash – This is encompassed in two measures: increasing the ceiling of tax exempt overtime hours to €7,500 and opening the possibility for companies to buy back RTT days from their employees.

Eligible employees covered by the 35-hour week agreement accrue time in lieu if they work overtime, known as RTT days. Currently this time is taken as extra vacation days, but now employees will have the option to forgo the time off and instead be paid extra.

Who: For the buying back of RTT days, this applies to employees (salariés) who have an RTT agreement with their company.

For the increased cap on non-taxed overtime work, this applies to a range of employees, such as those who have 35-hour per week contracts and have their employer request that they work overtime or those who work beyond their part-time contract amount. You can learn more about whether you have the ability to declare overtime hours HERE

When: The RTT days buyout will run from between January 1st, 2022 to December 31st, 2025. For employees eligible for tax-free overtime compensation, the ceiling of €7,500 will only be in place for the year 2022.

READ MORE: EXPLAINED: Why is France’s 35-hour week such a sacred cow?

Pay rise for public sector workers – public sector pay will get a four percent rise in the index.

Who: Anyone employed in France as a fonctionnaire (eg civil servants, teachers, librarians).

When: This will be retroactive to July 1st

Assistance for some self-employed workers – A reduction in health and maternity insurance contributions will be introduced for low-earning self-employed workers. “Microentrepreneurs” will also benefit from a reduction in their flat-rate contributions.

Who: Self-employed workers whose monthly income does not exceed 1.6 times the minimum wage and who are registered as ‘microentrepeneurs’

When: TBC

The biometric carte vitale –  The Senate introduced this into the purchasing power package, but it is not a benefit. It will involve the implementation of a biometric carte vitale health card to “fight against social fraud” by adding an electronic chip with biometric data on it to health insurance cards. You can read more HERE.

Who: Everyone who is registered in the French health system and has a carte vitale (about 60 million people)

When: Lawmakers will begin plans to implement the plans in Autumn 2022, but it’s not clearly exactly what form the rollout will take.

How much will these measures impact inflation?

Some measures will likely be more effective than others. For instance, the extension of the tariff shield and increase of the fuel rebate in the early fall is largely to thank for France’s inflation level being two points lower than the European average, according to INSEE.

On the other hand, the tripling of the ceiling for the (optional) Macron bonus will likely not make a large difference. This is because it will likely not be widely taken advantage of, as last year only 4 million French people received the optional bonus, with the approximate average of the bonus having been only €500.

The pension changes will impact about 14.8 million people in France. However, according to economist Christopher Dembik, the revalorsation values are based on actual inflation and not on inflation expectations. “These revaluation measures will be too weak by the time they will be implemented,” Dembik said to French daily Le Parisien.