French economy rebounds in the third quarter, but new lockdown risks a 'double-dip'

  • Despite the improvement during the summer period, "GDP remained well below the level it had before the health crisis," Insee said.
  • French President Emmanuel Macron announced on Wednesday a second lockdown starting Friday due to a rapid increase in the number of infections over the past weeks.
  • In Germany, retail sales dropped 2.2.% in September from the previous month, preliminary data showed on Friday.

LONDON — The French economy bounced back in the third quarter as it profited from a summer period with few social restrictions. However, the focus is now on the final quarter of the year after the two largest economies in the euro area announced nationwide lockdowns.

France's gross domestic product grew by 18.2% between July and September, the country's statistics office, Insee, said in a preliminary reading. France's GDP had contracted by 13.7% during the second quarter, which included the first full month (April) of nationwide lockdown in the wake of the coronavirus pandemic.

"The massive increase in French GDP in the third quarter is of no comfort to French policymakers or households, who are now contending with a second national lockdown," Andrew Kenningham, chief Europe economist at Capital Economics, said in a note.

Despite the improvement during the summer period, "GDP remained well below the level it had before the health crisis," Insee said. On an annual basis, the third quarter reading came in 4.3% lower from a year ago.

French President Emmanuel Macron announced on Wednesday a second lockdown starting Friday due to a rapid increase in the number of infections over the past weeks. This means that restaurants, bars and non-essential shops are closing once again. However, schools and factories will keep their doors open.

"We now have to contemplate the idea of a double-dip as the economy is knocked back by new restrictions," Claus Vistesen, economist at Pantheon Macro said in a note.

In Germany, retail sales dropped 2.2.% in September from the previous month, preliminary data showed on Friday. Retail of food, beverages and tobacco grew 6.8%, but sales in textiles, clothing, shoes and leather goods fell 7.3%, the German statistics office said on Friday.

The European Central Bank suggested on Thursday that there will be more monetary stimulus coming to the euro zone. The central bank will revise its economic expectations for the 19-member area in December and will decide then how much more support is needed.

"We have done that in the past: We have responded very promptly, very appropriately, very heavily, some would say, to the first wave that hit the euro area economies. We have done it for the first wave; we will do it again for the second wave," ECB President Christine Lagarde said on Thursday.

On top of low interest rates, the ECB has lowered costs for banks and created a coronavirus-specific government bond purchase program. The latter is currently set to last until June of 2021 with a total envelope of 1.35 trillion euros ($1.57 trillion).

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