World Economy

Strong Growth to Ease France’s Budget Balancing Act

Strong Growth to Ease France’s Budget Balancing ActStrong Growth to Ease France’s Budget Balancing Act

France’s economic recovery is strong enough for the government to be able to cut spending and the deficit without growth being affected, the budget and finance ministers said on Monday.

Budget Minister Gerald Darmanin confirmed that the 2018 budget to be presented on Sept. 27, the first of President Emmanuel Macron’s administration, would be based on a forecast for growth of 1.7%, Reuters reported.

 “In the coming years, it will be 1.7%. We hope to do better, but we are exactly in the middle of what economists expect,” Darmanin told BFM TV.

Previous governments have faced criticism from economists for basing their budgets and deficit-reduction targets on overly optimistic growth forecasts.

Darmanin said that growth for 2017 was also estimated at 1.7%—a slight revision upwards from a previous government forecast of 1.6%—in what would mark France’s strongest economic performance since 2011.

“The recovery is solid and gives us options on reducing public spending,” Finance Minister Bruno Le Maire said in a joint interview with Darmanin in Le Monde.

Consumer and business confidence have reached levels not seen in several years following Macron’s election, as concerns about France’s stubbornly high unemployment have eased a touch.

Darmanin said the spending cuts, set to reach €20 billion ($24 billion) across the public sector next year, would not drag down growth as they coincide with reforms making the economy more competitive and less dependent on state handouts.

The government has little choice but to slash spending in order to respect promises to reduce the public deficit from an estimated 3% of output this year to 2.7% next year, while it also aims to cut France’s considerable tax burden.

Although civil service wages are a major expense, Darmanin said the government would reduce headcount among state employees by only 1,600 next year, despite plans to cut the number of public workers by 120,000 over Macron’s five-year term.

Civil service unions have called a strike for Oct. 10 over concerns about wages and a welfare tax hike that risks hitting them particularly hard.

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