France Cuts 2023 GDP Growth Forecast to 1%, Citing ‘Tense’ Backdrop

Article content

(Bloomberg) — The French government lowered its economic growth forecast for next year, forcing it to delay tax cuts and keep tight control of spending in order to honor President Emmanuel Macron’s promises to reduce the budget deficit.

Article content

Disruption to business from volatile energy prices after Russia’s invasion of Ukraine, combined with households facing stronger inflation and difficulties for France’s main trading partners, mean the government now expects GDP to expand only 1% in 2023 instead of the 1.4% it forecast in July. 

Article content

“We are in an economic environment characterized by strong tensions on the European and international levels,” Finance Minister Bruno Le Maire said in a presentation to journalists on Tuesday. “In this tense situation, France is resisting.”

The deterioration of the economic backdrop has undermined Macron’s plans to press ahead with fiscal reforms in the early stages of his second five-year term as president. 

In order to stay the course of repairing public finances after massive spending during the Covid pandemic, the government now plans to cut a levy on industrial production more gradually than initially promised and will no longer make changes to ease inheritance tax as early as next year. 

Article content

Such delays are needed to keep the budget deficit at 5% of GDP and bring it below 3% by 2027. The Finance Ministry is also counting on stronger-than-expected revenues from corporate tax and savings that will be presented in final budget documents later this month. 

“Repairing France’s public finances is non-negotiable,” Le Maire said. “To stick to the path, the trajectory needs to be right from the start.” 

In a further complication to the fiscal equation, the government must also cover the cost of extending price-shield mechanisms that protect firms and households from steep increases in energy costs. Le Maire said it will require tens of billions of euros to ensure that price increases in January are “contained.” 

Key figures for the 2023 budget: 

• 2023 GDP growth forecast cut to 1% from 1.4%
• Inflation forecast raised to 5.3% from 5.1% for 2022 and to 4.2% from 3.3% for 2023
• Public debt forecast at 111.5% of GDP in 2022, 111.2% in 2023
• Budget will be based on oil at $89 a barrel on average next year
• 2023 budget based on 10-year borrowing rate at 2.5%