Photographer: Christophe Morin/Bloomberg

France Leaves Budget Effort for Later With Growth Narrowing Deficit

Updated on
  • Growth forecast raised, budget deficit to narrow faster
  • Macron facing backlash against reforms from railworkers

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

Gross domestic product will expand by 2 percent this year and 1.9 percent in 2019, more than the September projection of 1.7 percent for both years, the finance ministry said Tuesday. The budget deficit will 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 -- will be 1.9 percent instead of 2.1 percent this year.

Looking Up

France forecasts the budget deficit will narrow more quickly

Source: Finance Ministry

“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,” Budget Minister Gerald Darmanin told France2 television Wednesday. “We have to continue to make efforts to cut spending, and cut taxes.”

But with retirees, railway workers and students all staging protests against his plans to overhaul the French state, 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 will 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 International Monetary Fund said in September that France will require a strong political commitment over an extended period to drive through the deep spending cuts it needed to stabilize its finances.

Click here for a full breakdown of the government’s projections

The so-called “stability program” and its forecasts will be presented to the cabinet Wednesday, debated in Parliament later this month and submitted to the European Commission by the end of April. The finance ministry says it hopes the program, the improved deficit targets as well as the economic reforms led by the government will help France exit the excessive deficit procedure of the EU Commission.

France and Spain are the only two euro zone 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,” he said. “That contributes a drag on competitiveness and is part of the necessary structural reforms.”

The French economy is currently running faster than its long-term potential and will slow next year unless Macron makes more structural changes to boost its performance, Villeroy said.

Read more: UBS Sees Euro Area’s Brightest Growth Outlook in Ireland, France

Government debt will peak at 96.4 percent of GDP this year falling to 89.2 percent by 2022, the government said. It previously saw debt reaching 97.1 percent in 2019 and 91.4 percent in 2022. Germany’s public-debt burden is 64.8 percent of GDP and the European Commission forecasts it will drop to 57.9 percent next year.

“Debt is a poison for France’s economy,” Finance Minister Bruno Le Maire told Le Figaro. “It weakens our growth and impoverishes the French.”

— With assistance by Angeline Benoit, and Gregory Viscusi

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