France unlikely to meet budget deficit target of 3% of GDP in 2017

France’s Finance Minister Sapin had stated in early March that the nation’s public deficit for 2015 will be below 3.8% of GDP, as compared with 3.9% in 2014. The rebound in 2015’s public deficit is due to a sharper decline in public investment and lower debt servicing costs, both of which are expected to have dropped by 0.15pp of GDP in 2015.

This indicates that most remaining expenditures have continued to grow, in contrast with the statement that the government has given. The ratio of public spending to GDP rose to 57% in 2013 and 57.5% in 2014 from 56.8% in 2012, in spite of the government’s plan to cut the ratio to 56.7% European Commission has stated that France has barely cut its structural public deficit and therefore does not meet the EC’s requirement for structural budget deficit rebound.

“We expect the public deficit to stand at 3.6% of GDP in 2016 and 3.2% in 2017, compared to the SGP target of respectively 3.3% in 2016 and 2.7% in 2017, which corresponds to limited fiscal tightening (0.1pp of GDP this year, 0.2pp next year)”, says Societe Generale.

Therefore, France is unlikely to meet the 3% threshold in 2017. Only a couple of digits of the gap are explained by the various measures announced since the Paris attacks. Meanwhile, the overly optimistic government forecasts for GDP and inflation might be another explanation, suggesting that tax receipts are expected to disappoint. The social spending targets “will be difficult to achieve”, specifically savings on unemployment benefits and pensions, according to the State Auditor.