Thursday, 27 June 2013

French government warned on budget deficit

The target to reduce the deficit to 3% of GDP by 2015 is achievable, but the French government has very little room for slippage. Spending cuts of €13bn in 2014 and €14bn, as called for by the Cour des Comptes, seem manageable, given the French state spends around €1.1trn every year. The bigger concern is a deeper downturn and a shortfall in growth in tax receipts. As it is, the government already needs to raise an additional €5bn next year to cover projected revenue shortfalls for some taxes, in addition to planned tax increases of around €7bn. With the tax burden having risen to a record high under Mr Hollande's presidency, even Socialist ministers acknowledge the need for a change of direction, but they risk confrontation with their own backbenchers and trade unions if they push any harder on the spending front. We expect the deficit to come in a little above 4% of GDP this year, before falling to around 3.5% next year and just under 3% by 2015.

More on the economy of France

Last modified on Tuesday, 09 July 2013 12:04
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