ifo-N26-Economic Monitor: A Glance on France

How does the corona pandemic affect private consumers in France? How do health risk, lockdowns, but also income decline and economic uncertainty influence spending patterns? Find out more with the ifo-N26-Economic Monitor.

Map of Europe - France highlighted

Analyzing anonymized income and spending patterns of consumers the ifo-N26-Economic Monitor provides unique insights on the household sector and as such private income, consumption and savings in France and across Europe. This is particularly important as private consumption - the biggest component of the Gross Domestic Product - was a main driver of the economic downturn in 2020 and will determine the path of the economic recovery in 2021.

Aggregate incomce France

During the first lockdown in mid-April 2020, aggregate income decreased by about 25% compared to January 2020. Aggregate income recovered to around 85% over the following summer and increased further to 95% in November. Interestingly the second lockdown in November 2020 did not lead to a decline in aggregate income compared to pre-pandemic levels. In contrast, income remained almost at pre-pandemic levels at the end of 2020 and during the first quarter of 2021.

Aggregate spending France

In March 2020 aggregate spending started to decrease sharply plunging to 50% in mid-April. Aggregate spending started to recover slowly, but persistently, settling around 80% in mid-August and remaining around 70-80% for the rest of 2020 and the first quarter of 2021. Possible explanations for the sluggish recovery during summer 2020 despite most business closures having been lifted are avoidance of perceived health risks and inconvenient protection obligations by consumers as well as lower purchasing power among consumers due to the present income decline. Interestingly the second lockdown in November 2020 only led to a minor and delayed decline in consumer spending compared to the spending levels during summer. Hence current spending levels are still 25 percentage points higher compared to the low point during the first lockdown in spring 2020, but also 25 percentage points below pre-pandemic levels.

Spending France by sector

Spending on services and cash withdrawals were especially hit during the lockdowns plunging to almost 30% in April 2020 and 60-70% in November 2020 through March 2021. Moreover, we see no immediate, but only a slow and incomplete recovery of service consumption and cash withdrawals after the lockdown in spring 2020, reaching only around 65-75% in August 2020. Consumers are obviously adjusting their behavior and remain concerned way beyond the point where shelter-in-place measures are lifted to reduce their risk of infection. Spending on durable goods decreased during the lockdown in spring 2020, but increased shortly after as well as during the second lockdown starting in autumn 2020, suggesting that initial economic uncertainty among consumers declined and that there are other reasons for consumers to cut back on spending. In previous economic crises, consumers usually reduced their spending on durable goods as they postponed higher expenditures to hedge against economic uncertainty such as job loss or income decline. Furthermore, the large increase in consumption of durable goods during the Christmas period and the first quarter of 2021 offset the decline in services and cash withdrawals such that on aggregate there was only a minor and delayed spending decline during the second lockdown on the aggregate. Spending on non-durable goods remained relatively stable over the years, fluctuating between 80-100% compared to pre-pandemic levels. Current spending levels are around 60% for services and cash withdrawals, 85% for non-durable and 125% for durable goods compared to January 2020. Taken together the results suggest that health risk and lockdowns are the main drivers of the decline in spending on services and cash withdrawals. Measured in terms of consumption of durable goods, economic uncertainty among consumers is rather low.

Deposits France

On aggregate consumers are accumulating savings over the years, especially during the lockdowns. At the end of 2020, consumers have around 30% more deposits in their accounts compared to the beginning of the year. Subtracting aggregate savings in 2019 from aggregate savings in 2020, we calculate excess savings of 1.5% in 2020 in relation to aggregate annual income in 2019. As these savings remain in daily accessible accounts, consumers have restrained purchasing power. The excess savings trend continues in the first quarter of 2021. Importantly, our measurement of deposits is only a proxy for consumer savings as we do not observe interest bearing savings nor security accounts at other banks. Consequently, our measure of deposits likely underestimates consumer savings and restrained purchasing power.

Publications

Monograph (Authorship)
Oliver Falck, Benjamin Loos, Emanuel Renkl, Fabio Schmidt-Fischbach, Sebastian Wichert
2021

ifo-N26-Economic Monitor

Contact
Prof. Dr. Oliver Falck

Prof. Dr. Oliver Falck

Director of the ifo Center for Industrial Organization and New Technologies
Tel
+49(0)89/9224-1370
Fax
+49(0)89/9224-1460
Mail
Dr. Sebastian Wichert

Dr. Sebastian Wichert

Head of the LMU-ifo Economics & Business Data Center (EBDC, Research Data Center)
Tel
+49(0)89/9224-1507
Fax
+49(0)89/985369
Mail