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French Growth Seen 0.1% by EU, Short of Hollande Estimate

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Feb. 22 (Bloomberg) -- French growth this year will fall short of the government’s goal and the country won’t meet its budget-deficit target, the European Commission predicted.

France’s gross domestic product will expand 0.1 percent, the commission said, compared with the government’s 0.8 percent forecast. This year’s deficit will be 3.7 percent of GDP and not the 3 percent target agreed between the government and the commission, it said.

French President Francois Hollande and Finance Minister Pierre Moscovici have signaled in recent weeks that the euro area’s second-largest economy would miss its targets, blaming slowdowns elsewhere in Europe. Moscovici has said he’s opposed to further tax increases to hit nominal deficit objectives, saying it’s more important to focus on structural measures that ignore swings in economic activity.

“Our efforts to make structural adjustments have been recognized by the EU Commission,” Moscovici said at a press conference in Paris today. “I will pursue our dialogue with the” commission.

The French government has said it will present its own updated forecasts in late March or April. France’s near-term outlook “remains difficult,” the finance minister said, adding that a rebound in China and the U.S. will aid Europe’s recovery.

French growth will still be better than the euro area as a whole, which is predicted to shrink 0.3 percent.

The French economy was flat last year and will grow 1.2 percent in 2014 with unchanged policies, the commission said.

‘Tougher Time’

“We should not add austerity to the recession that’s already out there,” Moscovici said, adding that may plunge the country into a deeper recession.

The government plans to reform public pensions, Moscovici said today. He said the French government will unveil a new bill in March on consumer protection.

He cited comments by Standard & Poor’s to say the government is on the right path. S&P Chief European Economist Jean-Michel Six said in an interview on Europe 1 radio yesterday that the Hollande government pledge to cut public spending by 60 billion euros ($79 billion) by 2017 is an “unprecedented effort.”

Hollande has called on government departments to tighten their belts after pledging the cuts.

Tax Increases

Hollande’s 2013 budget included 20 billion euros of tax increases spread evenly between companies and individuals, including higher levies on wealth, capital gains and inheritance. A two-year 75 percent surcharge on income over 1 million euros was ruled unconstitutional by the country’s top administrative court.

Moscovici says those measures have cut France’s structural deficit by two percentage points of GDP.

French government debt will climb to 93.4 percent of economic output from 90.3 percent, the commission forecast.

Unemployment will rise to 10.7 percent of the workforce this year and to 11 percent next year from 10.3 percent in 2012, the commission said. Hollande is confronting joblessness at a 15-year high as companies from carmaker PSA Peugeot Citroen to Goodyear Tire & Rubber Co. seek to close factories.

The government’s goal is to reverse the “unemployment curve” in 2013, Moscovici reiterated.

To contact the reporter on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net; Mathieu Rosemain in Paris at mrosemain@bloomberg.net

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net

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