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France reins in 2020 recession forecast to -10%: sources

Kitco News

PARIS (Reuters) - France’s recession will be less deep this year than previously expected, translating into a slightly lower public sector budget deficit, Finance Ministry sources said on Wednesday.

The government is now expecting the euro zone’s second-biggest economy to contract 10% this year, compared with -11% previously, the sources said, citing economic forecasts to be included in the 2021 budget, due at the end of the month.

Next year the economy is expected to bounce back from its coronavirus-induced recession with an equally unprecedented 8% surge in growth, unchanged from a previous forecast.

France suffered one of the deepest downturns in Europe in the first half of this year as the government put the country under one of the continent’s strictest lockdowns to contain the coronavirus outbreak.

President Emmanuel Macron’s government has launched a 100-billion-euro ($118 billion) recovery plan to boost growth in 2021 and 2022, which accounted for 1.5 percentage points of the growth forecast next year, one of the sources said.

With its updated economic forecasts, the government now expects the public deficit to blow out to 10.2% of gross domestic product this year, less than the 11.4% expected previously because a shallower recession would translate into higher tax revenues.

Next year the shortfall between government spending and revenues was seen reduced to 6.7%. That was worse than the 5.5% deficit expected previously, due mainly to extra spending on the recovery plan and the health system, as well as tax breaks for firms that struggled during the lockdown.

By the end of 2021, French gross domestic product is still expected to be 2.7% smaller than in 2019, before the crisis, the sources said. The government has set a goal of fully recovering all lost ground by 2022.

Reporting by Leigh Thomas; Editing by Catherine Evans

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