France sticks by deficit target, forecasts 200,000 jobs to be created

The French government insists it will reach the European Union target of reducing the public deficit to three per cent of GDP and believes its Responsibility Pact will boost production and create 200,000 jobs, official forecasts discussed in cabinet on Wednesday showed.

French Finance Minister Michel Sapin Reuters/Charles Platiau

The deficit, which Brussels insists must go down, will be cut to 3.8 per cent this year and 3.0 per cent next year, the government said when it presented its stability programme on Wednesday.

The forecast is based on public spending’s share of output being reduced - from 56.7 per cent this year to 53.5 per cent in 2017 – and a rise in investment and foreign trade.

The finance ministry points out that the last two years’ feeble growth has cut the state’s income and predicts improvement, with GDP rising from 1.0 per cent this year to 1.7 per cent in 2015 and 2.25 per cent in 2016 and 2017.

The government hopes that President François Hollande’s Responsibility Pact, which aims to reduce labour costs by 30 billion euros, will boost investment and help create 200,000 jobs.

While only expecting investment to increase 0.2 per cent in 2014, it predicts a 1.3 per cent rise in 2015 and 3.4 per cent in 2017.

That will be despite the fact that consumer spending, usually the most important factor in French growth, would be only 0.8 per cent in 2014, rising to 1.6 per cent in 2015 and 2.2 per cent in 2016.

Government debt is expected to go down from 95.6 per cent of GDP in 2015 to 94.2 per cent in 2016 and 91.9 per cent in 2017, despite cuts in employers’ social security contributions, and public spending is expected to rise 0.1 per cent per year – compared to a recent average of 0.8 per cent per year – lower than the predicted rate of inflation of 1.2 per cent this year, 1.5 per cent next year and 0.9 per cent in 2013.

The National Assembly will vote on the programme on 29 April before it is sent to the European Commission on 7 May.

“Growth is what’s been lacking,” Finance Minister Michel Sapin told Le Monde newspaper on Wednesday. “So far as France is concerned we’ve been through five years of zero growth. At the end of 2013 France was back to its 2008 GDP. The social and economic damage has been awful.”

The cuts involved in the Responsibility Pact and additional tax reductions promised by Prime Minister Manuel Valls have created rifts in the ruling Socialist Party.

“We’re not going for all or nothing,” Sapin told Le Monde. “But there is one thing that the government won’t change – the major balances and the will to restore competitiveness to business.”