The rocky state of the French economy was the fly in the ointment marring a picture of stability presented by the European Commission’s quarterly forecasts for European Union economies published on Monday (5 April). The European Commission repeated its prediction from February that the eurozone economy would grow by 1.2% in 2014. However, it revised downwards its prediction for 2015 by ten basis points, forecasting growth of 1.7%.
In February, the Commission had projected that the French economy would grow by 1.7% in 2015. The French economy, however, is now projected to grow by 1% in 2014 and by only 1.5% in 2015, helped by resurgent domestic demand, but held back by low exports.
Michel Sapin, France’s finance minister, sought on Monday night (5 May) to put a positive spin on the Commission’s prediction that the French budget will post a deficit equivalent to 3.4% of gross domestic product in 2015. This would mean that France would breach the requirement for budget deficits to be less than 3%. Manuel Valls, the new French prime minister, confirmed last week that France would comply with the rule by 2015. France has already been granted a two-year extension by the Commission to do so – from 2013 to 2015.
Sapin pointed out that the Commission’s February prediction had been that the French deficit for 2015 would be 3.9%. He was confident that the Commission forecasts would again be less pessimistic once it had taken into account all the budget measures announced recently by the reshuffled French government. Last week the French parliament backed a government plan to cut public spending by as much as €50 billion, with €30bn to be used to finance tax reductions for companies. The Commission’s forecasts described the savings as “sizeable”, although it was undecided whether the labour cost reductions would translate into the additional expected growth. In a sign of growing concern, EU finance ministers on Tuesday (6 May) agreed to a Commission proposal to specifically monitor macroeconomic imbalances in the French economy.
By contrast, the Commission’s growth predictions for Spain and the Netherlands signalled improvement. Spain would benefit from growing consumer confidence and easier credit conditions, the Commission said, although unemployment was expected to decline only moderately to around 24% of the economically active workforce in 2015.
The Dutch economic recovery that took hold in the second quarter of 2013 is expected to improve, driven by rising household consumption. Unemployment is expected to hover around 7% through 2014 and 2015.
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