Still resilient private consumption and large automatic stabilisers are moderating the contraction in domestic demand, and France is less exposed to the collapse in world trade than some other countries. Both underlying and headline inflation could fall to near zero by end-2010.

The budgetary measures put in place to face the crisis are starting to take effect and are largely self-reversing. The downturn will nevertheless lead to sharp deficit increases, so that credibly restoring public finances will be a key challenge in the years to come. Once the recovery is firmly anchored, the government should therefore implement a medium-term package of spending cuts and tax base broadening that will ensure fiscal sustainability.

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©OECD Observer No 274, July 2009