France's Best Budget Gap in a Decade Won't Mean Complacency

(Bloomberg) -- France’s best budget figures in a decade are no reason for complacency and President Emmanuel Macron knows it.

Data published Monday showed the nation’s budget gap amounted to 2.6 percent of output in 2017, the first time since 2007 it’s been below the 3 percent European Union limit.

The improvement was partly due to faster economic growth boosting tax receipts, and the government still has spade work to do to cut spending and reduce the debt ratio. Amid growing protests throughout the country, Macron has yet to lay out a road map, though ministers have defended his current policies.

“France has made good on its promises,” Economy Minister Bruno Le Maire said on France Info radio on Monday. “This is proof that the president’s strategy to straighten out the budget is the right one.”

Ten months into the job, Macron is facing rising discontent from pensioners, rail workers and civil servants after pushing through a landmark labor-market reform, squeezing the budget deficit, and slashing taxes for businesses. Improving the books on a structural basis will require more work and won’t be an easy fix.

“We are not yet seeing a significant reduction in public spending on a structural basis,” said Frederik Ducrozet, an economist at Banque Pictet & Cie in Geneva. “A meaningful reduction will take longer to materialize, it is a multi-year process.”

Le Maire is due to present France’s budget plans to the European Commission next month. Those will include strategic decisions on structural cuts to narrow the deficit.

The economic and political conditions are favorable, and a cleaner budget slate will help the reputation of France as Macron seeks to convince partners that the euro-area’s second-largest economy is entering a new era. It’s the only nation, along with Spain, that’s under the EU’s excessive deficit procedure.

“This is good news,” the European Union Economic and Financial Affairs Commissioner Pierre Moscovici, a former French finance minister, said on television channel LCP. “France should be able to exit the excessive deficit procedure.”

France’s deficit last year stood at 59.3 billion euros, representing 2.6 percent of gross domestic product, from 3.4% in 2016, according to Insee:

  • Public spending represented 56.5% of GDP from 56.6% in 2016
  • Public receipts grew to 53.9% of GDP from 53.2% in 2016
  • Public spending grew 2.5% overall in 2017 while receipts grew 4%
  • France’s debt stood at 97% of GDP v. 96.6% in 2016

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