France to continue paying Covid unemployment into 2021 at a cost of billions of euros

Despite a gradual improvement expected in the economy next year, many French companies will continue to use the government's partial unemployment scheme, set up in response to the Covid-19 pandemic, at a cost that could reach €10 billion.

A 3D-printed economy stock graph is seen in front of displayed coronavirus disease (COVID-19) words in this illustration taken March 24, 2020. REUTERS/Dado Ruvic REUTERS - DADO RUVIC

According to a report published this Friday by the French Economic Observatory (OFCE), the research group forecasts a recovery in the country's gross domestic product of 7.1%, in the wake of a 9.5% drop in GDP this year.

But, if this recovery may appear spectacular, the OFCE has warned that the figures "hide significant losses of [economic] activities at the end of 2021."

The last quarter of 2021, GDP will still be 1.4% below the pre-crisis level, despite the stimulus plan planned by the government. However it is the sectors which will continue to function under strict sanitary restrictions, such as restaurants, cinemas, theatres or shops, that the negative economic repercussions will endure.

So taking this scenario on board, the OFCE predicts that many companies will continue with diminished working hours to reduce their costs, while avoiding laying off their employees.

Ce matin à l'@ofceparis conférence de presse sur l'évaluation de l'impact économique de la pandémie de Covid-19 en France et perspectives pour 2021 pic.twitter.com/CUPHDZjTgY

— OFCE (@ofceparis) December 11, 2020

This would represent around 900 million working hours of partial activity in 2021, for "an amount of compensation of 10 billion euros borne by the State and [state unemployment agency] Unédic", according to the OFCE.

France's labour minister Elisabeth Borne has also announced that the current conditions for partial unemployment benefit will still be maintained until the end of January with the sectors most affected by the pandemic receiving 100% of State benefits.

Up until now, the French government has budgeted €6.5 billion for part-time work next year.

This financial package - the most costly for France's public finances since the beginning of the Covid pandemic - has prevented an even greater surge in unemployment this year.

However, business bankruptcies, so far contained by State support, could lead to the loss of upto 180,000 jobs next year.

The OFCE believes that by the end of 2021, France's unemployment rate will rise to 10.6%, after a high of 9.5% by the end of this year.

L'Etat continuera de prendre en charge 100% de l'activité partielle pour les secteurs fermés administrativement tant que nécessaire, et jusqu’à fin janvier pour les secteurs protégés. 1/2 pic.twitter.com/QFP4EBrjM5

— Elisabeth BORNE (@Elisabeth_Borne) December 9, 2020