IMF warns France on deficit, slowing growth

27th July 2011, Comments 0 comments

France will probably need extra action to cut its public deficit in 2012 and 2013 as falling growth threatens to complicate economic recovery, the International Monetary Fund said on Wednesday.

The IMF forecast that growth in France, the eurozone's second-biggest economy, would slow in 2012 to 1.9 percent from 2.1 percent this year. This was sharply lower than the French government's 2012 forecast of 2.25 percent growth.

"Progress is being made in fiscal consolidation but more efforts might be needed to reach the 2012-13 targets," it said in a report due for publication later Wednesday but released early by the French economy ministry.

It said that without further efforts France was set for a public deficit of 3.8 percent of output in 2013, above the EU three-percent limit and France's forecast. French public debt would peak at 88 percent that year, it added.

France is under growing pressure to cut its own deficit after its President Nicolas Sarkozy last week played a leading role in drawing up a new debt bailout for Greece to stabilise the eurozone.

He is trying to push through a change to France's constitution that would oblige its government to keep a rigorously balanced public budget, but faces a battle with the Socialist opposition over the plan.

Officials are concerned that France's credit rating could suffer if Sarkozy were forced to call a special assembly to pass the budget law. Analysts warn that France is the weakest of the European countries to hold a top credit rating.

"France cannot risk missing its medium-term fiscal targets given the need to strengthen implementation of the (EU) Stability and Growth Pact and keep borrowing costs low by securing France's AAA-rating," the IMF report said.

Sarkozy's constitutional reform "would help to unequivocally signal the authorities commitment to the adjustment path."

France has vowed to get its deficit down to 5.7 percent of gross domestic product (GDP) this year, 5.6 percent next year, and down to the EU limit of three percent in 2013, but this strategy relies on growth picking up.

The IMF "expects GDP growth and revenue outcomes from 2012 to be weaker than those currently foreseen by the authorities and hence the deficit ratio to fall more slowly than envisaged," Wednesday's report said.

"Under (IMF) staff's current projections, achieving the deficit target of three percent of GDP by 2013 requires further measures."

The International Monetary Fund and analysts have warned that the fragile global economic recovery could falter in the coming years, citing the European and US debt risk and a threat of emerging economies overheating.

French Socialist presidential hopeful Segolene Royal said on Wednesday the deficit had grown under Sarkozy's leadership and his bid to fix the public finances was "like a driver without a licence trying to give driving lessons."

Sarkozy has vowed to cut tax breaks but on Tuesday said he would not reverse a cut in value-added tax on cafes and restaurants -- a promise interpreted by Le Monde newspaper as a nod to voters.

"It's the first gift of his presidential campaign," it said.

© 2011 AFP

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