Economic Outlook - France
Although COVID-19 cases are finally slowing down in countries such as China, and various parts of East Asia, France is still very much in the storm, and the economy is still falling, not recovering. As in other parts of the world, the French and E.U. governments are taking significant measures to slow the spread of the virus and minimize damage to the economy. Businesses right now are mostly just trying to manage liquidity crisis and adjust to a new normal. However, there are a few businesses who are finding creative ways to build their brand, and sometimes even their bottom line, during these challenging times.
France is still deep in the COVID-19 storm
- France is not on the rebound yet. Unlike China, and some other East Asian countries, France was hit by the virus relatively late, and its death rate is still on the rise. As of March 30th, 40,174 people have been positively identified as having been infected there, and 2,606 people have died. On March 31st, France reported 418 deaths in a single day, its highest number since the outbreak.
- The next 15 days are expected to be even more challenging. The French army is transferring patients across the country due to hospital overcrowding, and the French government has locked the country down until at least April 15th to help slow the spread.
The French and E.U. governments are taking measures to help manage
- Both the E.U. and French governing bodies are taking significant measures to both stop the spread of the virus and help save the economy from long-term damage. Unfortunately, public health measures that are saving French lives by flattening the infection curve, are also increasing the negative economic impact of the virus, and drawing out its effects.
- According to the French National Institute of Statistics and Economic studies, French economic activity is down 35% overall from this time last year, and it is estimated that an additional 1 month of confinement will lead to a 3% loss of GDP for the year, while 2 months will result in a 6% fall. Despite more people staying home, electricity use is 20% less than expected since the start of the crisis. A 15% contraction of the economy is anticipated for the second quarter of the year, and the French economy could shrink 5% overall during the course of 2020. This economic contraction is expected to weigh heavily on the country's tax resources, and to increase the budget deficit to 7%.
- The French government is not standing idly by. French Economy Minister, Bruno Le Maire, has detailed a plan which will provide 345 billion euros to help support the economy, with 45 billion of that going towards helping companies cancel or defer their social security contributions, and with 300 billion going to secure bank loans and prevent businesses from going bankrupt.
- The French government has also gotten approval from the E.U. government to defer taxes in a number of sectors, including the airline industry, which has lost significant revenue since the French government shut down most of its traffic flow. And the government is considering nationalizing the larger French airlines to prevent the total collapse of the industry, and the huge economic and social cost that would entail
- If there is any hope to be had, it is that China seems to slowly be making its way out of the storm. New infections have decreased dramatically, and China is slowly reopening its economy, although significant challenges remain. People are still hesitant to venture out, and there is always a risk of a resurgence of the virus.
- However, people are starting to move about again, and it is anticipated that China, whose economy contracted drastically during the 1st quarter of 2020, may see a strong rebound in the 2nd half of the year. Since China was hit over a month before France, it will be helpful to look at how the recovery plays out there to see what pitfalls French businesses can avoid as the virus dies down there.
Businesses face a changing economy and cash flow struggles
- Companies are struggling across almost all industries in France. Small and medium-sized companies especially, are having trouble meeting their cash flow requirements, as most businesses are partially or completely closed, while still having to keep up with at least some overhead costs, such as labor, utilities, and office space rental. Because of the government restrictions imposed to prevent spread of the virus, 1/3 of French employees have been forced to start working from home, and another 1/3 have been at least temporarily laid off.
- In the retail industry, companies are noticing a disturbing trend. During other economic downturns, customers have typically "stepped down" from more expensive brands, to similar, less expensive retailers. With the COVID-19 crisis though, customers have for the most part, halted all purchases of non-essential items. This has forced many stores to take a reactive stance and stop making capital expenditures. Instead, they are sitting on cash in anticipation of impending cash flow shortages.
- When they can, many companies are also taking out loans to tide them over. This is a risky undertaking, since future revenue is highly uncertain. It is still unknown if, or when, COVID-19 will resurge, since there is not yet a vaccine available. Also, there is no guarantee that the industry will ever return to its pre-COVID-19 state. In fact, in some parts of the retail industry, it is anticipated that there will be a permanent move towards less traditional, and more online retailing. Many stores may run out of liquid assets before the shutdown ends and have to file for bankruptcy, and additional debt will only complicate things, adding stress to already struggling financial institutions, and decreasing the ability of these lenders to lend to others.
- The measures being taken by the French government, including guaranteeing corporate debt up to a certain amount, will likely help companies in the short-term, but are cause for concern, as overextended businesses and lending institutions contributed greatly to the global recession in 2008, and could delay economic recovery.
Businesses get creative and adapt to the new normal
- Despite all of this uncertainty, companies that do have the means are doing their best to start adjusting to what is likely the new normal. Since most operations are closed down right now, companies have the opportunity to strategize and figure out how their business will look in a post COVID-19 world.
- Stronger companies may be able to buy competitor companies who are struggling, at a discount. Many other companies will have to rethink their mission as they face uncertainty as to whether customers will return, whether another pandemic will hit, and whether their supply chains will remain stable. Just-in-time inventory has been the industry trend for a while now because of the cost savings it allows, but after the crisis, more companies may choose to keep supplies on hand so that they can be ready for any disruptions in the chain.
- Some companies are getting quite creative, and shifting their shutdown production lines to the production of much needed medical supplies and devices. Many of these companies have received authorization from the French government to sell the much needed supplies. In addition, if properly marketed, these companies will receive a significant PR boost that could help them differentiate themselves from competitors once the crisis is over.
- BioMerieux, for example, is a French biotech company that has shifted gears and started producing COVID-19 testing kits with a shortened result window. The company marketed this good deed via a company press release. In addition, it received a boost in visibility from Forbes, who wrote an article about "companies helping the cause." And it is not just high-tech engineering companies who are getting a boost from this method of promotion, famed French make-up company, L'Oreal, has converted production at many of its plants to making hand sanitizer, which has been in extremely short supply during this pandemic.
The request prompt was seeking indicators of economic recovery in France. However, France is not yet in recovery. COVID-19 cases continue to escalate, and the country will likely remain shut-down for another month at least. Despite this, some companies are finding a way to forge ahead and start recreating and rebranding themselves so that they can be successful in a post COVID-19 world. We researched some of these companies, and have included a brief outline of both the challenges these companies are facing, and the methods that they are using to overcome.
After our initial analysis of the political and economic challenges facing French companies today, our research focused mainly on the retail industry due to time constraints. There was no data available on the impact of increased advertising spending on sales or market share after the recovery, as the recovery has not really begun yet here. However, there were a number of articles featuring companies who have decided to join the COVID-19 fight by making supplies and medical devices. Although, the numbers are not yet available to show the impact of this strategic and PR friendly move, it is likely that French consumers will look favorably on businesses that took actions to save lives during the crisis. Furthermore, many of these businesses are now able to make money on the sale of these supplies, instead of having to pay workers and overhead costs for a shut-down factory.