Hollande Deficit Delay Brings No Market Risk, Economists SayMark Deen and Andre Tartar
French President Francois Hollande’s push to slow the pace of deficit reduction is unlikely to trigger any increase in borrowing costs, according to economists surveyed by Bloomberg News.
Since a rout in municipal elections March 27, Hollande has named a new government and signaled that France would like to push back the date for bringing down its budget shortfall to 3 percent of gross domestic product for a third time in an effort to nurture the nation’s fledgling economic recovery. Manuel Valls, Hollande’s new prime minister, said this week that he wants to trim spending by 50 billion euros ($61 billion) by 2017 and lower taxes on both businesses and households.
Whether or not the European Commission, which enforces euro-area rules on the debt and the deficit, agrees to Hollande’s request, bond investors probably won’t punish France, 12 out of 15 economists said in Bloomberg’s monthly economic survey.
“There has already been quite some effort made from the French authorities to lower expenditures,” said Martin Janicko of Moody’s Analytics. “And in general, the sovereign debt crisis is easing in the euro zone.”
Economists see France’s budget deficit at 3.8 percent of gross domestic product this year and 3.3 percent in 2015 before narrowing to 2.6 percent in 2016, according to a separate Bloomberg survey.
France currently pays an interest rate of about 2.04 percent to borrow for 10 years, compared with 1.54 percent for Germany. That puts the spread with Germany at about 50 basis points, down from 72 basis points in late January.
Asked whether Valls would succeed in turning around Europe’s second-largest economy, nine economists predicted he would, while six see France lagging other economies in the 18-nation currency region.
“We expect growth to gradually pick up but it is seen remaining unspectacular and below the euro-zone average this year,” said Diego Iscaro at IHS Global Insight in London.
GDP probably expanded about 0.2 percent in the first quarter and will grow 0.3 percent in the second, third and fourth quarters, according to the median estimates of 36 gathered by Bloomberg. National statistics office Insee reports first-quarter GDP on May 15.