France cuts growth forecast for 2011 from 2.5% to 2%

Nicholas Sarkozy - French President

France on Tuesday cut its growth forecast for next year to two percent from 2.5 percent after President Nicolas Sarkozy met with senior economic officials at his Riviera retreat.

A government statement said it expects France’s gross domestic product to “meet or exceed” this year’s target of 1.4 percent but that economic growth in 2011 would be slower than had been hoped.

France — Europe’s biggest economy after Germany — has begun to recover since shrinking 2.5 percent last year but the International Monetary Fund had warned that its growth forecasts were too optimistic.

The government has pledged to narrow the public deficit, covering central and regional government spending along with social welfare, from a record 8.0 percent of GDP this year to 6.0 percent in 2011.

But at the same time, Sarkozy has promised not to raise general taxation.

The statement promised to abolish around 10 billion euros per year in various targeted tax breaks, while freezing public spending and maintaining a policy of only replacing only one retiring public servant in two.

“Any resulting excess in revenues will be entirely assigned to reducing the deficit,” it said, promising to continue with policies of only replacing one retiring civil servant in two and of freezing local government funding.

Sarkozy has vowed to maintain state spending at current levels, apart from interest payments and pensions, for the next three years as France battles to bring its ballooning deficit under control.

The talks at Sarkozy’s official Mediterranean retreat, the Fort de Bregancon, included Prime Minister Francois Fillon and Economy Minister Christine Lagarde and Budget Minister Francois Baroin.

The IMF says France needs to implement additional measures to reduce its public deficit to 3.0 percent of output by 2013, in accordance with its European Union obligations.

Several eurozone countries, including France, have far higher ratios, notably because of the costs of facing the global economic downturn, and are working on often unpopular reforms to reduce structural deficits.

The French economy grew by a faster-than-expected 0.6 percent in the second quarter of 2010, topping the Bank of France’s prediction of 0.4 percent.

The cabinet is to meet for the first time after the summer break on August 25, with controversial pension reform plans to go before the lower house of parliament on September 7.

After the economics meeting, Sarkozy returned to his wife Carla Bruni’s nearby family residence at Cap Negre.
Source: AFP

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