The unprecedented fiscal stimulus plans launched by European governments this summer (Phase II to revive growth engines after Phase I emergency programmes) should help boost economic growth by +2,4% in France, +2 % in Germany and +0,7% in Italy in the two-year period 2021-22. As reported by the recent Allianz study for Eurler Hermas, in France the 100 billion euro stimulus package (4,3% of GDP) is aimed at achieving the green transition (30 billion), promoting industrial competitiveness (35 billion) and the safeguarding of social cohesion (35 billion) through transfers and labor market adjustments. Compared to the essentially demand-oriented German stimulus package (3,8% of GDP), the French stimulus aims to boost the supply side of the economy: the French government's goal is to revive the national production engine , revitalizing traditional industries such as the automotive industry, addressing the long-standing structural rigidities of the economy.
However, Paris is still heavily dependent on imports, both in terms of consumption and investment. Therefore, the flip side of this fiscal stimulus will likely be the widening of the already large trade deficit. Indeed, by stimulating domestic demand, government stimulus packages naturally increase demand for imports, benefiting trading partners: among major European economies, analysts expect France to suffer the biggest loss since the fiscal stimulus, causing the trade deficit structural deterioration of -12 bn net in 2021-22. The picture is radically different in Germany, where a slight decline of -3 billion in the trade surplus is estimated, while in Italy the surplus would increase by 1 billion. France's budget deficit already stood at -2,1% of GDP (43,1 billion) in the second quarter of this year and, as half of the fiscal package is set to stimulate investment, in 2021- 22 this would increase French imports by 1,8% (42bn), with exports by only 1,3% (30bn).
How does this compare to the global financial crisis of 2009? The stimulus for 2020 is higher as a share of GDP than that of 2009 (26 billion equal to 1,3% of GDP) due to the unprecedented drop in forecasts (-10,8%). Therefore, analysts expect these measures to stimulate imports four times as much as they did in 2009. However, beyond the stimulus, the Covid-19 pandemic crisis has created long-lasting supply chain disruptions, making it hardly comparable to the 2009. In the current scenario, world trade is expected to return to pre-crisis levels only in 2022, since the recovery in exports would not be as strong as in 2010-11. Furthermore, service-oriented economies, such as Paris, tend to suffer more from the crisis, making it difficult to compensate for the deterioration in the exchange of goods.
Which countries and sectors could then ride France's stimulus wave? German chemicals (€900m), Chinese computers and telecommunications (€890m) and German automakers (€775m) could benefit most from the surge in French imports. In this scenario, Germany, the main trading partner (6,1 billion euros), followed by China (3,9 billion), Italy (3,1 billion), the USA and Belgium (both 2,8 billion). The sectors to benefit most from the stimulated French imports would be energy (5 billion), chemicals (4,3 billion) and agri-food (4,1 billion).
And Berlin? In Germany, the deterioration in the trade balance will be more limited. The elasticity of imports on GDP growth is lower (2,1%) than in France (3,1%): hence the German stimulus of 3,8% of GDP would increase both imports and exports of 1,3% (43 billion and 40 billion respectively). The overall deterioration of the trade balance will be minor (-3 bn): these imports will benefit the domestic economy to a greater extent, reflecting the large share of the manufacturing sector (19% against 10% in France) that uses imported inputs in the production process.
For Italy, despite the large trade elasticities to stimuli, analysts forecast a moderate overall impact on the trade balance, given the relatively modest size of the announced package (1,5% of GDP). Italian imports should increase by 0,7% (12 billion) and exports by 0,8% (13 billion) in 2021-2022. In this context, according to a study published by ANFIA, the National Association of the Automotive Industry, in 2019 the automotive sector (including engines, bodywork, trailers, components and parts of motor vehicles) recorded a slowdown in sales of -9,6 .13,9% over the previous year. Specifically, the various sectors recorded the following performances: -6,7% for the manufacture of motor vehicles, +7,9% for the manufacture of bodywork and -12% for the manufacture of parts and accessories for motor vehicles and engines. In general, the study shows that the negative trend of the various sectors has been going on for a long time, exceeding 2019 months of continuous trend declines. On average, orders in 9,9 recorded a slowdown of -7,8%, while the overall turnover of the sector fell by -2019%. This slowdown is to be ascribed to a greater extent to the declines recorded by the domestic market, which in 13 lost -11,7% of orders and -XNUMX% of generated turnover.
In the first three months of 2020, due to the closure of production activities following the measures to contain the spread of Covid-19, the sector most affected was the industrial sector, with a progressive slowdown which led overall to a -11,3 % in the first quarter of 2020. In fact, during the lockdown period, almost two thirds of industrial companies and over 59% of employees were forced to interrupt production activity, including vehicle dealerships, thus causing the collapse of the first three months of the year. The automotive sector is in fact among the sectors that contribute most to the profound drop in production of the entire Italian industrial sector, with a slowdown in performance of -2% in January, -1,2% in February and -55,8% in March , overall -21,6% on a year-on-year basis. On the orders side, a drop of -7,2% was already noted in February, more marked abroad with a slowdown of -7,8%, due to the first effects of the pandemic.
According to the ANFIA study, in the first quarter the national production of motor vehicles suffered a slowdown in terms of volumes equal to -24,3%. In fact, since the beginning of the year, a total of 180.367 motor vehicles have been produced, of which 116.250 destined for foreign markets, -24,5% compared to the same period of 2019. For the first four months of 2020, the loss of the automotive sector is estimated equal to 150 thousand units less, while the projections on a possible recovery starting from the month of May are particularly slow and there is talk of a recovery starting from the second half of 2020. The shock on the supply side also weighs on the sector: in Italy and in the major European markets such as France and Germany, the stock of vehicles accumulated in the months of quarantine combined with the very slow restart of the market are further slowing down the restart of production.
