France’s economic recovery lies in the hands of its citizens

The money will go to creating jobs for young people facing the worst employment prospects in years, reducing French carbon emissions, and protecting its myriad small businesses from collapse. Another €40bn will go to overhauling strategic manufacturing sites.

Consumer spending slips over virus fears

While France hopes to return to pre-crisis levels within two years, much depends on consumer spending, the traditional engine of the Gallic economy. After claiming Europe’s “yellow jersey” in June, according to Boston Consulting Group, French spending then unexpectedly slipped last month amid fears of a rebound in infections.

Instead of splashing out, the French could be sitting on a €100bn pool of personal savings by the end of the year, the governor of the Bank of France has estimated.

Until now the government has been content to push supply-side measures, notably a cut in “production taxes”,  levies paid on top of the normal corporate income tax worth a combined €77bn – twice the EU average and seven times more than in Germany.

“It has seen no need to stimulate demand via a VAT cut or to intervene in real estate with a stamp duty holiday as in the UK because it considers financial conditions are easy enough,” says Ana Boata, head of macroeconomic research at Euler Hermes.

The government had hoped consumer spending would rally on pledges not to raise taxes until the end of President’s five-year term in 2022. But confidence was further rattled by a decision this month to make mask-wearing compulsory in all workplaces. Fresh domestic stimulus may be vital to avoid free fall as the French return from summer breaks.

For OFCE economist Mathieu Plane, the ball is now firmly in the consumer’s court. “There have never been so many savings and households have never been so rich. The real recovery plan is in the hands of French households.”