The French government has stepped in to try and stem job losses, through wage protection schemes. But these may prove inadequate. Image Credit: AFP

Paris: French economic output will take two years to recover from the virus-related slump that that will inflict even longer lasting damage on the labor market, the central bank said.

The Bank of France report shows that even with robust growth in the next two years, unemployment will continue rising to reach a record high close to 12 per cent in the first-half of 2021 and decline to only 9.7 per cent by the end of 2022. The economy, which will shrink more than 10 per cent this year, will recover to the level reached last year around mid-2022.

"After the very strong shock, the catch up will be spread out over time," the Bank of France said.

If the pandemic were to intensify again and the state maintained restrictions, the recovery would be further delayed and output would contract 16 per cent in 2020, according to the central bank's adverse scenario.

The forecasts - the Bank of France's first since the pandemic - show the coronavirus casting a long shadow over economic prospects despite massive spending by governments in Europe to protect jobs and businesses. 

Jobless woes

In France, even with the government's furlough program, unemployment claims have already surged and the Bank of France expects around 1 million fewer jobs in the economy by the end of 2020. Company profit margins will register their steepest declines in 40 years.

At the peak of the French lockdown, economic activity was around two-thirds of normal levels. At the end of May, activity was about 17 per cent below normal, according to the Bank of France, but improvement is gradual and the gap will still be about 7 per cent at the end of the year.

There is high uncertainty surrounding the forecasts, notably regarding household savings rates that will play a big part in the rebound, the Bank of France said. It estimates that savings could be 100 billion euros above pre-crisis expectations by the end of the year.

"Only the appearance of a lasting medical solution mid-2021 would restore household confidence enough for a clear reduction in the savings rate," the Bank of France said.