France: A widening budget deficit
Growth is likely to fall below 1% in 2008 as a whole amid sharply deteriorating global economic conditions in the latter part of the year, due primarily to the financial crisis. The impact of this turbulence will reverberate well into 2009, with negative growth expected until the middle of the year, followed by a gradual pick-up of activity to above potential rates by mid-2010.
As a result, a significant widening of the general government deficit is expected in both 2009 and 2010, despite the announced tightening of fiscal policy over the next few years, which is projected to result in a modest fall in the underlying deficit. While the government should let the automatic stabilisers operate fully in the short term, the scope for additional discretionary measures is limited by the poor public finance position and prospects. The focus on expenditures control and reform of the public administration should be maintained.