A slow and uneven recovery risks entrenching the initial negative distributional consequences of the COVID-19 crisis and widening inequalities of opportunities. The EUR 100 billion recovery plan targeting investment in skills and green technologies provides an opportunity to respond to some of the country’s longstanding challenges.
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2021 Structural Reform Priorities
Activity is projected to fall by 9.1% in 2020 and expand by 6% in 2021 and 3.3% in 2022. After a second national lockdown at the end of 2020, the sanitary situation is assumed to improve only slowly. Despite sporadic local virus outbreaks, the easing of containment measures and the prospective rollout of an effective vaccine would still allow for a gradual reduction in precautionary saving and, eventually, a catch-up in the most affected sectors (tourism and leisure services). As export markets recover, external demand and investment will pick up. The unemployment rate will peak around end-2021 and remain above its pre-crisis level in 2022. By the end of 2022, public debt is expected to increase to 120% of GDP.
Temporary emergency measures and the medium-term recovery plan provide strong fiscal support, balancing measures on the supply and demand sides. The gradual phasing-out of short-time work schemes and loan programmes for firms will encourage the reallocation of resources across firms. To ensure a gradual recovery, the government should continue to target new support measures to firms directly impacted by temporary national and local restrictions. Prioritising and speeding up testing capacities would also help in identifying and isolating infected people more rapidly, helping to control the epidemic and boost economic activity.
This study estimates the effect of energy prices and carbon taxation on firms’ environmental and economic performance. The analysis uses data on 8 000 firms that are representative of the French manufacturing sector and observed during 2001-2016. The paper shows that (i) even though a 10% increase in energy prices causes a decline in energy use by 6% at the firm level, this increment has no effect on net employment at the industry level, but it motivates a reallocation of production and workers from energy intensive to energy-efficient firms. Our conclusion calls for complementary labour market policies that minimise costs on affected workers and ease between-firms adjustments in employment.
Read the blog post: Carbon tax, emissions reduction and employment: Some evidence from France
Economic growth has slowed down after a gradual recovery. Global economic conditions, monetary policy and structural reforms have supported exports and investment in recent years. However, global uncertainties and the effects of social unrests weighed on activity in 2018. Employment rates remain low and the fiscal situation has not recovered. Real wage growth and productivity gains have not returned to pre-crisis levels, despite a slight rebound in 2017-18.