Eco Notepad features educational articles that present the research, studies and economic expertise of the Banque de France. The blog is aimed at students, professionals, journalists and academics. Some articles will be devoted to analyses carried out by the Bank's branch network, on specific topics. The opinions expressed are those of the authors and do not necessarily reflect the position of the Banque de France, the Eurosystem, or the institutions employing these authors.
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The coronavirus crisis and decline in economic activity have led to a steep rise in the need for financing. As a result, net issuance of public and private debt securities in the euro area has increased to unprecedented levels. The main buyers are central banks and banking institutions, and, to a lesser extent, non-euro area residents.
Chart 1: Public and private debt issuance has reached record levels in the euro area (Seasonally adjusted data, EUR billions) Source: European Central Bank (author’ s calculations).
The technology balance of payments (TBP) provides a framework for analysing international technology transfers. After displaying a surplus in 2018, France's TBP stood at equilibrium at the end of 2019. The European Union's TBP shows a surplus comparable to that of the United States.
Chart 1: France: TBP at equilibrium in 2019 after a slight surplus in 2018 (EUR billion/balance excluding insurance and tourism). Source: Banque de France
Preserving companies' investment capacity as they emerge from the Covid-19 crisis is a key issue of economic policy, as shown by the emergency measures taken by the ECB and, in France, by the government. Indeed, access to external financing is a major determinant of investment. A financing shock, such as the 2008 crisis, could lead to a sharp decline in the investment rate of major French groups.
Chart 1. Cost of external financing for non-financial corporations (%) Source: Gilchrist and Mojon (2017)
During the lockdown, the Banque de France's network of VSE-SME correspondents was greatly called upon to guide entrepreneurs in their requests for financing. Managers' concerns changed during this period.
Chart 1 – Managers’ meetings with VSE-SME correspondents and crisis-related needs Source: Banque de France
The Covid-19 pandemic has severely disrupted international tourism. As foreign traveller surveys are no longer conducted, the Banque de France has brought into play innovative information sources, such as payment card data, to assess the scale of the shock. After a massive drop in receipts since March, European visitors returned to France during the two summer months.
Chart 1: France’s international tourism receipts (in EUR billions) Source: Banque de France.
Official development assistance (ODA) should be bolstered in 2020 by the international response to the Covid-19 crisis, whose impact in low-income countries is still uncertain. The main challenge is to ensure that the efforts undertaken will be sufficient and sustainable: increasing ODA is desirable if the sustainable development goals for 2030 are not to be compromised.
Chart 1: Changes in financial flows entering LICs (in USD billions) Sources: World Bank, OECD and Banque de France estimates for 2020.
According to the Banque de France macroeconomic projections published on 14 September 2020, after declining by 8.7% in 2020, GDP growth is expected to stand at 7.4% in 2021 and 3.0% in 2022. Despite this apparently impressive rebound, the economic catching-up process should in reality only be very gradual. GDP should only return to its pre-crisis level at the beginning of 2022. This post provides a few explanations of these unusual growth rates.
Chart 1: France: Projections of the volume of GDP, compared to the post-2008 trajectory Sources: Insee, Banque de France
In response to the economic impact of the Covid-19 crisis, the European Commission has authorised a temporary easing of the framework governing the use of State aid. While this measure was necessary in an emergency situation, it is likely to distort competition in the internal market if it is used on a wide, prolonged and heterogeneous basis.
Chart 1: Breakdown by country of State aid ceilings authorised by the Commission from 19 March to 8 July 2020 Sources: European Commission data (estimated ceiling amounts) and author's calculations. The amount of State aid paid out can be de facto much lower than the ceiling amount, in particular in the case of loan guarantees (e.g. Germany).
By Vivien Levy-Garboua, François Mouriaux, Tatiana Mosquera Yon and Mylène Sabatini
Since the 2008 financial crisis, captive financial institutions (special-purpose financial holding companies), subsidiaries of non-financial corporations (NFCs), have helped to drive growth in the financial sector, causing it to outstrip GDP growth. This trend reflects the increasingly complex and international organisational structures adopted by NFCs, but does not appear to have been accompanied by growth in risky financial transactions by these entities.
Chart 1a. Foreign direct investment by country, liabilities, % of GDP Source: ECB
While the Covid-19 shock to the world economy is, in many respects, unprecedented, the recovery that is expected could nevertheless be similar to past ones. Reconstruction and sectoral reallocation of activity and employment are processes that take time, and debt is likely to weigh on aggregate demand. The speed of the recovery will therefore depend less on the nature of the shock than on the measures taken to limit its impact.
Chart 1 Fall in Unemployment in France, Germany, Italy and the United States during recent recoveries. Source: OCDE.
Are the effects of a fiscal stimulus greater in situations in which central banks are stuck at the zero lower bound (ZLB)? The question is still debated in the economic literature but some empirical evidence suggests that the ZLB per se does not seem to increase the effects of a fiscal stimulus, while economic slack and loose monetary policy do: this bodes well for the fiscal response to the covi19 crisis.
Figure 1. UK fiscal multiplier of output Source: Glocker, Sestieri and Towbin (2019).
The health crisis has severely impacted global trade and revived debates about the location of production. The widespread onshoring of manufacturing activities would mean abandoning the gains from international specialisation, but without necessarily making value chains more resilient. Given that French companies mainly source their inputs from Europe, a coordinated, EU-wide industrial strategy seems more appropriate.
Chart 1: Percentage change in volumes of manufacturing output and external trade between January-April 2019 and January-April 2020 Source: CPB World Trade Monitor. Authors' calculations.