Bank of France sees milder hit from 2nd lockdown

Paris

FRANCE'S economy will take a smaller hit from the new lockdown to contain the spread of Covid-19 than it did during the tighter restrictions on activity earlier this year, according to the country's central bank.

Business leaders in industry and construction expect a much milder decline in activity because they face fewer limits on operations and new health protocols allow more employees to continue, a survey by the Bank of France showed.

But the French economy is in a highly uncertain phase as the government could revise restrictions or even extend the lockdown, depending on the evolution of the pandemic. There's been little sign of respite, with a record increase in confirmed infections at the end of last week and some intensive care units nearing capacity with Covid-19 patients.

The Bank of France estimates that activity in November during the lockdown will be 12 per cent below the pre-crisis normal level. While that's far less than the 31 per cent figure in April, the impact could still be enough to mean that the economy shrinks again this quarter.

The central bank's governor Francois Villeroy de Galhau said he now expects economic output to shrink between 9 and 10 per cent in 2020. The Bank of France previously forecast a 8.7 per cent contraction.

"This second lockdown of course has a significant negative effect," Mr Villeroy said on RTL radio on Monday. "But it's clearly less heavy than the first lockdown, almost three times less heavy."

The government has already downgraded its 2020 economic forecast to a contraction of 11 per cent from 10 per cent previously. It also plans to cut its growth forecast for 2021 at some point in the next two weeks as the situation evolves. BLOOMBERG