PARIS (Reuters) – French household savings skyrocketed while businesses’ profits plunged in the second quarter as the euro zone’s second-biggest economy suffered a record downturn due to a coronavirus lockdown, official data showed on Friday.
One of Europe’s strictest lockdowns pushed the economy into a 13.8% slump in the quarter after already contracting 5.9% in the previous three months, the INSEE stats agency said, confirming an initial reading.
With most shops, cafes and hotels closed from mid-March to May 11, unspent cash pushed the household savings rate up to a record 27.4% of disposable income, while consumer spending – the traditional driver of the French economy – dropped 16.4% in the quarter.
Meanwhile, in the corporate sector, companies saw their profit margins fall to 26%, the lowest since the end of 1983, INSEE’s data showed.
After most businesses were able to reopen in May, activity quickly surged, although there has been some signs that the catch-up is easing after the initial rebound.
Going into the third quarter, consumer spending rose 0.5% in July from June, slowing from a surge of 10.3% in June, INSEE said in a second release.
That fell short of economists’ average forecast for an increase of 2.0% in a Reuters poll. The slower pace was largely driven by a slowdown in new car purchases, which had surged after the lockdown while food spending eased.
The government is banking on households spending their extra savings, which is expected to reach 100 billion euros this year – the equivalent of 4% of GDP, to help jumpstart an economic recovery.
Therefore, it is focusing a 100-billion-euro stimulus plan due to be presented next Thursday instead on the corporate sector, with business tax cuts and incentives to hire and invest in France.
(Reporting by Leigh Thomas; Editing by Alex Richardson and Toby Chopra)