France cuts growth outlook, pledges to rein in deficit

16th March 2005, Comments 0 comments

PARIS, March 16 (AFP) - New French Finance Minister Thierry Breton cut the country's growth forecast for 2005 on Wednesday but pledged to bring finances into line with eurozone rules despite public pressure for pay rises.

PARIS, March 16 (AFP) - New French Finance Minister Thierry Breton cut the country's growth forecast for 2005 on Wednesday but pledged to bring finances into line with eurozone rules despite public pressure for pay rises.

Breton cut the forecast for growth of the French economy this year to 2.0-2.5 percent from 2.5 percent at his first policy conference since taking over the post late last month.

Speaking six days after major French demonstrations for higher pay and ahead of a tense meeting at the weekend of EU finance ministers on fiscal limits, Breton said he would work to spur French growth while trimming deficits, debt and chronic unemployment.

He said the French public deficit would be reduced to less than 3.0 percent of gross domestic product (GDP) this year, falling to 2.9 percent, in line with European Union rules.

Breton, a frank former France Telecom chief who addressed media accompanied by graphic charts, based his forecasts on an oil price of USD 53 (EUR 39.6) a barrel and a euro worth USD 1.34, "very high levels that we all hope to see decrease".

France has repeatedly breached the EU Stability and Growth Pact's 3.0-percent deficit limit which official data puts at 3.7 percent last year after 4.2 percent in 2003.

In line with predecessors, Breton called for boosting the buying power of consumers, one reason why hundreds of thousands of workers took to the streets last Thursday.

Prime Minister Jean-Pierre Raffarin, who heads a centre-right administration, has said that the recovery of the economy and tax receipts has provided some room to stimulate spending power and consumption, the main driver of the economy in the last few years.

However, the last time France achieved strong growth, amid credibility surrounding the euro after it was launched, the previous Socialist government used part of extra tax revenue to correct public finances, but also used some of it to support consumption.

This provoked strong criticism from the EU Commission and the European Central Bank which argue that countries must concentrate first on correcting deficits and moving towards surpluses. These pressures remain at the centre of French economic policymaking and of talks to reform the pact.

Breton said Wednesday he hoped terms of the pact would be relaxed, a move supported by Germany and Italy but strongly opposed by smaller EU states.

He noted that economic growth last year, at 2.5 percent on an unadjusted basis, had been the best since 2000.

For 2005, he said "I want to remain lucid and I must note like everyone else that the international environment is uncertain and generates downward risks which are sufficiently significant for me to feel obliged to take them into account, and notably oil and the value of the dollar".

Saying that he had always preferred to work on a basis of broad targets rather than specific figures, he said: "This is why I feel perfectly at ease with the principle of taking for 2005 the outlook for growth in a range of 2.0-2.5 percent".

On the deficit, he said: "I have just notified Brussels of our public deficit target for 2005 which will go below 3.0 percent (of output) this year, to 2.9 percent as the government has promised".

The finance minister acknowledged the threat posed by a recent five-year high point in French unemployment, saying "it is essential to get below the level of 10 percent".

He proposed measures to underpin private French industry and workers, including increased profit sharing for which businesses would receive an exceptional tax credit.

Strong results by many French groups last year have sparked public calls for a greater share of the wealth.

Other credits would offset investment in research and development as well as aid by large French groups to independent small and medium-sized enterprises, and partnerships with research labs.

Ahead of his meeting Sunday with EU counterparts, the finance minister slammed the French debt, which surged from the equivalent of EUR 90 billion (USD 120 billion) in 1980, or 20.7 percent of GDP, to EUR 1.066 trillion, or 65.6 percent.

Under the stability pact's rules, it should not exceed 60 percent.

While acknowledging the part played by unemployment, he added: "We must have the courage to recognise the collective refusal by a generation to adapt spending to revenues, to reform what needed to be reformed, and to eliminate waste, of which there was a lot."


Subject: French News

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