Business Climate Improves In France

As lockdowns ease in France, they are triggering a long-awaited rebound in the business climate and PMI indicators. However, the details of the survey depict an economy which is still far from being back to normal.

Hiring intentions rebound... but only just

In the French service sector, business confidence was just above its lowest level of the 2009 crisis in June.

This alone shows how relative is the activity rebound during the unlocking phase.

Businesses' opinion of their own situation hardly improved between May and June (the indicator remained at -57 in June, well below the worst level seen during the global financial crisis of 2009 at -30), showing that their financial position was considerably jeopardized by the weeks of inactivity, despite the lockdown ending.

Expectations for activity in the coming weeks are positive but not enthusiastic: the index rebounded from -52 to -13. Nevertheless, we need to go back to 2013 to find similar levels. In terms of employment (Chart 1), caution remains the order of the day. While there has been a considerable improvement for temporary or interim contracts (the level of which could not fall any lower since the June survey shows an exceptional value of -100 for the recent trend in these contracts), hiring intentions (when excluding temporary work) are hardly higher than at the bottom of the 2009 crisis.

In retail trade, excluding autos, the picture is very similar. In other words, in these two sectors, while the end of lockdown brings relief, there are still many doubts about the level of activity that will characterize this post-COVID "new normal".

Hiring intentions remain on the cautious side apart from temporary contracts

Source: INSEE

Overall, today's survey puts into perspective the good performance of PMI indicators, which yesterday signaled the end of the activity contraction in services and manufacturing.

Since these surveys are a balance of opinion, it is only natural that there are more positive than negative respondents after three weeks of economic unlocking. The INSEE surveys show us a deeper unease, beyond the "restart" of activity, about the prospects for recovery.

This supports the scenario of recovery in two phases: a V-shaped first recovery phase, followed from 4Q20 onwards by a slower recovery that will only bring activity back to pre-crisis levels at the end of 2022.

To find out more about these prospects and France's recovery plan, click here to read our economic quarterly update (also available in French).