Thu, Apr 12, 2018 - Page 10 News List

France postpones budget reform as deficit narrows

COST-PERFORMANCE:The head of the central bank said the cost of French government services is much higher than in neighbors, which hurts competitiveness

Bloomberg

France raised its growth outlook and forecast the budget deficit would narrow more quickly through 2022 as an economic recovery buoys public finances.

GDP is forecast to expand by 2 percent this year and 1.9 percent next year, more than the projection in September last year of 1.7 percent growth for both years, the French Ministry for the Economy and Finance said on Tuesday.

The budget deficit is expected to shrink to 2.3 percent this year, compared with a previous projection of 2.6 percent.

The so-called structural deficit — which adjusts for the impact of the economic cycle — is forecast to be 1.9 percent instead of 2.1 percent this year.

“We have a growth rate that’s better than recent years, but still below the average in Europe, and a debt that’s one of the highest in Europe,” French Minister of Public Action and Accounts Gerald Darmanin told France2 TV yesterday. “We have to continue to make efforts to cut spending, and cut taxes.”

However, with retirees, railway workers and students all staging protests against his plans to overall the French state, French President Emmanuel Macron is delaying the major effort to rein in the budget shortfall until the second half of his five-year term.

After stripping out the effect of the economic expansion, the government is to cut its spending by just 0.1 percent of GDP this year and by 0.5 percent in 2021 and 2022, the ministry said.

The IMF in September said that France would require a strong political commitment over an extended period to drive through the deep spending cuts it needed to stabilize its finances.

The so-called “stability program” and its forecasts were yesterday to be presented to the Cabinet, debated in parliament later this month and submitted to the European Commission by the end of this month.

The ministry said that it hopes the program and the improved deficit targets, as well as the economic reforms led by the government, will help France exit the excessive deficit procedure of the European Commission.

France and Spain are the only two eurozone members still facing heightened budget controls.

Bank of France Governor Francois Villeroy de Galhau on Monday called on Macron to tackle government spending.

“For the same level of performance, the cost of French government services is significantly higher than in neighboring euro-region countries,” Villeroy de Galhau said.

“That contributes a drag on competitiveness and is part of the necessary structural reforms,” he added.

The French economy is running faster than its long-term potential and would slow next year unless Macron makes more structural changes to boost its performance, he added.

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