France cuts growth forecast

France has cut its forecast for economic
growth next year following a meeting between the president and senior finance
ministers.

It now thinks the economy will grow by
2% next year, down from the previous forecast of 2.5%.

This year it will “meet or
exceed” 1.4%, the government said.

President Nicolas Sarkozy asked
ministers to interrupt their summer holidays to discuss how France is going to
cut its deficit.

They met at his official retreat, Fort
de Bregancon.

Deficit measures

Afterwards, the president asserted that
the reduction of the government deficit in 2011 from a record 8% to 6%,
whatever the level of growth, was “a major objective” for the
country.

Mr Sarkozy will need to find 100bn euros
in savings if he is to slash the deficit from 8% of GDP to the EU limit of 3%
by 2013.

Public expenditure would be reduced, the
president said. He also repeated his pledge not to increase VAT, income tax or
tax on companies.

But he said 10bn euros of tax breaks
would be abolished in the autumn.

France’s 1.4% forecast for this year’s
growth is in line with that of the International Monetary Fund (IMF). However,
for next year the IMF thinks expects the French economy to grow by 1.6% – less
than the government’s forecast.

Some economists agree and consider the
new 2011 figure optimistic.

“I think it’s still quite
ambitious,” said Deutsche Bank’s Gilles Moec, who is forecasting growth
for France of nearer 1% next year.

“The current environment is not
consistent with such an acceleration in growth,” he said.

“I think they were trying to strike
a balance here. They wanted to acknowledge that the previous forecast was too
optimistic without having to unveil new measures.”

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