On the Wings of Strong Growth, France Reduces Deficit Estimates

France will reduce its budget deficit this year and next year somewhat more than expected, thanks to stronger growth than previously projected, said Finance Minister Bruno Le Maire on Tuesday.

Strong growth also means that President Emmanuel Macron’s government can cut spending in next year’s budget less than previously anticipated.

Minister Le Maire stated that the government is now targeting a budget deficit of 2.9 percent of gross domestic product (GDP) this year and 2.6 percent next year, which is 0.1 percentage points lower than previous projections.

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– This is slightly better than we initially indicated to lawmakers because growth is somewhat better, said the minister in an interview with France 2 television.

The French deficit has regularly exceeded the upper permitted limit in the EU of three percent of GDP since 2007, so Paris must keep it below that limit for two years to exit the excessive deficit procedure. A slight revision of earlier projections allows it to achieve that goal more quickly.

Le Maire adds that the government has set a reduction in state spending of 16 billion euros in 2018, which is less compared to the initially targeted 20 billion euros.

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On Monday, Le Maire and Budget Minister Gerald Darmanin stated that the French economic recovery is strong enough to allow the government to reduce spending and the deficit without harming growth.

Thanks to stronger economic growth, the finance ministry expects somewhat higher tax revenues than previously estimated. This year, they now expect economic growth of 1.7 percent, 0.1 percentage points stronger than earlier projections.

Accordingly, the government will implement a planned tax relief of 10 billion euros next year, as part of President Macron’s corresponding program, according to the finance ministry’s statement.