The French economy returned to its pre-crisis level in the third quarter, which was much earlier than expected. According to the Banque de France’s business survey, conducted between 27 October and 4 November among 8,500 companies or establishments, activity was stable overall in industry and construction, and continued to improve in market services. In November, business leaders expect activity to strengthen in industry, services and construction.
According to our estimate, GDP should exceed its pre-crisis level by about half a percentage point in October and by ¾ of a percentage point in November. Quarter-on-quarter GDP growth is expected to be around 0.75% in Q4 2021. Growth should be driven by the market services sector, whose value added has exceeded its pre-crisis level since September. On the other hand, activity in the manufacturing industry would remain below its pre-crisis level, mainly due to the automotive sector, penalised by supply difficulties, and to a lesser extent to the aeronautical industry. Within services, food services continued to recover strongly, and accommodation, automotive repair, leisure activities and business services also improved.
After worsening steadily in previous months, recruitment difficulties eased somewhat in October, particularly in services, but still affect almost half of all businesses (49%, after 54% in September). Supply difficulties were slightly less severe than in the previous month in construction (58% of firms, after 62% in September) but continued to be stable in industry (56% of firms, as in September). However, they had the greatest impact on the automotive sector, while activity in the other industrial sectors and the construction sector remained strong.
These supply difficulties, together with the rise in raw material prices, contributed to an increase in sales prices in industry and construction, while service companies did not report any significant upward price adjustments. Recruitment difficulties do not seem to have an impact on price setting (see box).
In industry, the overall capacity utilisation rate stood at 76% in October, after 77% in September; but remained close to its pre-crisis level of 78% in February 2020. This rate fell slightly in the automotive industry, after the sharp drop recorded the previous month (54% in October, after 56% in September and 70% in August). There was little change in other industrial sectors.
The change in the balances of opinion on production confirmed this further deterioration in the automotive industry, but indicated a stability of activity in industry as a whole.
Activity returned to its pre-crisis level in several industrial sectors (wood, paper and printing, agri-food, chemical and pharmaceutical industries, in particular) but remained weak in the transport sectors (71% and 83% respectively of the pre-crisis level in the automotive sector and in the aeronautics and other transport sector).
In market services, activity continued to strengthen almost across the board in October. The improvement was significant in food services and accommodation, business services, automotive repair, and leisure activities, the arts and entertainment. In contrast, activity in other personal services (hairdressers, home services, etc.) contracted after improving greatly the previous month.
In the construction sector, there was little change in activity in October in both the structural and finishing work sectors.
Opinion balances on the cash position remain high in both industry and services. In the food service sector, the recovery was very substantial and the balance of opinion returned to normal.
In industry, the outlook for activity is tilted to the upside in all sectors. The chemical, pharmaceutical and electrical equipment industries are expected to see the strongest growth. Activity in the automotive industry is expected to recover after two months of sharp decline.
In services, activity should also improve in November across the board. Food services should continue to grow strongly. The improvement is expected to be very significant in the temporary work sector as well.
In the construction sector, activity is expected to increase slightly in the structural work sector and more substantially in the finishing work sector.
The opinion on the order books weakened somewhat in industry but strengthened slightly in construction. In both cases, it is well above its long-term average.
In our previous business update published on 11 October 2021, we estimated quarterly GDP growth in Q3 2021 at around 2.3%. It stood at 3% according to the preliminary estimate of the quarterly national accounts published by INSEE on 29 October 2021. This implied a slightly upward revision of our estimate of monthly GDP levels for Q3 with, in particular, a now positive difference of almost ¼ of a percentage point compared to the pre-crisis level as of September.
For October, by incorporating quarterly accounts and using granular survey data as well as other available data, we estimate the GDP level at half a percentage point above its pre-crisis level. Although activity in industry and construction declined slightly this month and remained significantly below its pre-crisis levels, activity in services continued to grow and is now about 1 percentage point above its pre-crisis level.
This assessment uses the high-frequency data that we also monitor additionally for sectors not covered by the survey, and to confirm our assessment on industry and retail trade. In particular, credit card spending provides useful insights for the retail sector, which grew strongly in October. More general data from Google Mobility and on road traffic provide information on the transport sector, which firmed slightly in October.
Updated on: 11/23/2021 12:22