French economy: why March 2022 is not March 2020

Companies are asking for a return to partial unemployment, Bercy is working on government-guaranteed loans (PGE), supply chains are threatened with supply disruptions, the future is uncertain… The consequences of the war in Ukraine in France are déjà vu. As in March 2020, economic forecasts are outdated as soon as they are published, and forecasters are reduced to writing scenarios, reminding them that they are no more geopolitics than epidemiologists. However, this crisis differs from the previous one in many ways.

The pandemic was a simultaneous supply and demand shock. The epidemic started in China, the world’s largest manufacturer, and disrupted global supply chains. Health protocols and remote work have destroyed all businesses. Demand has fallen sharply with the cessation of many types of consumption, in particular in the service sector (tourism, leisure, restaurants, hotels, cafes, hairdressers, etc.). Before the economy recovered, energy consumption fell and inflation was low. A barrel of oil even touched $20! At that time, we even feared deflation. Today, the shock concerns only the supply, which was affected by the rise in prices for energy carriers and some types of raw materials (the most important metals, grains, oils). “Demand remains robust despite rising prices and declining household purchasing power,” said Alain Durre, chief economist at Goldman Sachs Europe.

Time bomb. In addition, “we are not necessarily aware of this in Europe, but this shock is quite limited to our continent within the developed countries,” emphasizes Philippe Martin, president of the Council for Economic Analysis. The United States, exporters of oil products and gas suffered much less. Countries other than Europe are net importers of energy, but “especially in Europe, because of our energy mix, there is a strong link between gas and electricity prices and Russian gas supplies,” notes Gilles Moek, chief economist at Axa.

Finally, the answers to be given vary. It is no longer a matter of softening the shock “at any cost” while it passes. Energy prices will remain high for a long time, so it is better to help businesses and households to adapt than to compensate. An energy price freeze or, more broadly, fuel tax cuts is a ticking time bomb for public finances. But it is politically very difficult, if not impossible, to reverse these decisions.

“At this stage, it is not practical to compensate all companies, even if they are generally affected by rising energy prices. Their safety valve will reflect on selling prices”

In October 2021, an association of 40 million motorists asked the state to reduce VAT from 20% to 5.5% on energy products – a proposal still promoted by Marine Le Pen, Anne Hidalgo, Fabien Roussel and Jean Lassalle – in order to save from 18 to 20 cents per item. liter of fuel. Knowing that, according to Bersi, a centime of a drop is worth 500 million euros, it would be worth ten billion. At that time, diesel cost an average of 1.55 euros per liter, and gasoline – 1.62 per barrel – $ 83.

Address help. Today, gasoline and diesel fuel are more expensive than 2 euros per liter, and a barrel costs more than 115 dollars. If the state cut taxes, it would face an even bigger problem and ten billion euros less. “People forget what’s been done very quickly, and that doesn’t stop prices from going up,” says one of Bercy’s. Not forgetting that this “sends the wrong price signal and is a climate disaster,” adds Philippe Martin. As for the price blocking advocated by Jean-Luc Mélenchon, Eric Zemmour and Anne Hidalgo, the risk is the same.

The government seems to be moving more towards targeted assistance to low-income and car-dependent households, as well as companies most affected by the Ukrainian crisis (stopping supplies, exports and significant energy consumption). Employers agree. “At this stage, it is not practical to compensate all companies, even if they are generally affected by rising energy prices,” said Patrick Martin, vice chairman of Medef. Their safety valve will be reflected in the sale prices. For the few thousand companies in crisis, we think it appropriate to re-introduce the pejorative zero-balance partial operation regime that the private sector has to pay for, and perhaps some financial support and energy price capping mechanisms. “.

For now, Labor Minister Elisabeth Bourne has indicated to social partners that groups can still use and enter into long-term part-time agreements with a remaining fee of 15%. Capri is over.

Leave a Comment