French Budget Deficit Seen at 2.6% of GDP

France’s public sector budget deficit is expected to come in worse than thought this year at around 2.6% of economic output, Finance Minister Bruno Le Maire said on Monday.

Le Maire told journalists that slower than previously expected growth would push the deficit to 2.5% instead of the 2.3% expected so far, Reuters reported.

The government’s decision to take over debt from the SNCF public railway would add further pressure on the deficit, pushing it to 2.6%, he added. “The aim for 2018 remains to respect the (EU limit of) 3%... but we will not be at 2.3%,” Le Maire said.

French President Emmanuel Macron’s government will tackle social spending in the next wave of its reforms as weaker than expected growth puts pressure on the budget deficit, the prime minister said on Sunday.

Prime Minister Edouard Philippe said in an interview in Le Journal du Dimanche that the government would press on with its reform drive in the face of record unpopularity after little more than a year in office.

Macron has so far largely turned a deaf ear to criticism of his reforms, with detractors dubbing him the president of the rich after cuts to taxes on capital income during his first year in office, which he said encouraged investment.

His government has sold its pro-business reforms on promises that they will boost growth and jobs, but Philippe said that growth would be weaker than expected next year.

Philippe told the journal that the 2019 budget would be based on a growth forecast of 1.7% rather than the 1.9% forecast in April.

The prime minister acknowledged that the lower growth is likely to weigh on the public budget deficit, which is already under pressure from plans to make a payroll tax credit scheme permanent.

“But that does not prevent us from sticking to our commitments on reducing taxes while reining in public spending and debt,” he added.

The government has been under pressure from Brussels and the International Monetary Fund to detail plans to rein in public spending. France is among the global frontrunners in the spending stakes.

Philippe said the government is particularly keen on reducing spending on what he described as ineffective policies such as housing or subsidized jobs.

He said that housing allowances, family welfare benefits and pension payouts would increase by only 0.3% in 2019 and 2020. That is far less than the 1.5% average inflation rate economists polled by Reuters expect next year and the 1.8% expected in 2020.

Meanwhile, the government would consider reducing unemployment benefits over time, Philippe said.