Repair of French fiscal plans slower than other countries

Economic growth assumptions in France’s 2022-2027 stabilization program may not be met, fiscal targets not ambitious, and finances recovering slower than peers again, according to major rating agency It seems to be set to

DBRS Morningstar says that under France’s medium-term plan (postponed due to elections), the deficit will not fall below 3% of GDP until 2027, and the government debt ratio will remain high and stable, on a downward trajectory. We commented that we would not go back. .

France is similar pattern Fiscal consolidation was relatively slow after the financial crisis a decade ago. Most other eurozone countries have repaired fiscal imbalances more quickly, returning debt ratios to pre-crisis levels and trends.

Slow budget repairs will not affect France’s strong debt profile, according to the rating agency, but the country’s spending to address structural challenges or respond to another shock It says space is limited.

“The relatively optimistic premise of the fiscal plan is partly linked to the passage of major reforms. The ambitions of these reforms are likely to be challenged by the new composition of the upcoming parliament. recent parliamentary electionsJason Graham, vice president, Sovereign Group, DBRS Morningstar, said:

“A weaker performance than growth expectations is likely to sustain France’s budget deficit in the long term, accelerating the rebalancing of public balance sheets across Europe.”

Growth premise is “ambitious”

The government expects the French economy to expand by 2.5% in 2022 and 1.4% in 2023. For the French economy to perform in line with these projections, the stabilization program assumes an average annual inflation rate of 5.0% in 2022 and 3.2% next year. , decreases as interest rates rise and energy costs fall.

These price assumptions are uncertain and determined by the development of energy and food prices as a result of: Russian invasion of UkraineFacilitation of Global Supply Chains, Wage Dynamics in the French Economy, said DBRS Morningstar.

Available data for the last three months show that the consumer price index expanded at an average annual rate of 6.4%.

The rating agency added that the government’s growth projections face multiple downside risks.

The IMF in its July 2022 WEO update was less optimistic than the SP. The French economy is expected to grow by 2.3% this year and 1.0% next year.

Rexecode, a French economic research institute, expects the economy to grow by just 0.3% in 2023. The high variability in forecasts is related to high inflation uncertainty, falling consumer and business sentiment, rising interest rates and tightening financial conditions. .

Risks are amplified by doubts about gas supplies energy consumption Heading to Europe this winter. From 2024 to 2027, the government expects growth to average 1.7%, beating his trend growth of 1.4% recorded from 2010 to 2019.

Strong growth will also come from an increase in labor supply through the passage of major reforms to pensions, unemployment insurance, the minimum income system and public childcare, according to the government.

DBRS Morningstar concludes that details are not yet clear, and the new composition of parliament following recent parliamentary elections is challenging these ambitions.

After winning his re-election in April 2022, Macron lost his majority in parliamentary elections in June. A emboldened opposition is likely to derail the government’s reform agenda.

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