France: A serious but temporary drag on growth – BNP Paribas

According to Hélène Baudchon, analyst at BNP Paribas, the negative impact of the yellow vest protests on France’s Q4 activity is likely to be significant.

Key Quotes

“The direct impact will arise from the blockading of roads, damage caused to some infrastructure and shops and the ensuing disruptions in supply chains and fall in activity, revenues, and employment. An indirect impact will take place through the drop in consumer and business confidence and the reduced propensity to consume and invest. It is also unclear how big the shortfall will be once the situation is back to normal.”

“We are now looking for a quarterly growth rate of 0.2% instead of 0.6% previously, a forecast which was admittedly on the high side. This is likely to lower annual average growth for 2018 to 1.5% instead of 1.7%.”

“Next year will, therefore, start on a much less secure footing than expected thus far. The weaker carry-over effect automatically lowers the annual average growth rate by 0.3 pp. However, the stimulus package announced by President Macron to address the yellow vests’ demands is immediately growth-supportive and focused on households with a high propensity to consume. Assuming a cautious fiscal multiplier of 0.5, the roughly EUR 10 bn total package will add 0.2 pp to growth. Next year’s growth is, therefore, still likely to reach 1.6%, according to our forecasts.”