Deficit seen as crucial hurdle to recovery in France

18:14, March 13, 2011      

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After recording a rebound in 2010, France is struggling to sustain its growth this year and efforts to bring down the amounting budget deficit are crucial to pulling off the goal.

The government targets a 2-percent output growth this year to trim jobless rate to 9 percent from the present 9.3 percent. Upbeat industrial and investment data has buoyed recovery hopes.

"We don't see a crisis this year, but we expect a tepid recovery as we noted that economic acceleration during the first months was not strong enough compared with those of 2010," said Jean-Louis Mourier, economist at Aurel BGC, a French investment firm.

"The only hurdle which could block a strong growth is the budget deficit which would hamper public investment. In addition, the soaring oil prices could also pose a major risk to fragile local firms, job creation and households revenues following a rise in inflation," Mourier told Xinhua.

With the budget deficit standing at 148.8 billion euros (205.16 billion U.S. dollars), France has vowed to put closing the budget gap on top of its agenda as sovereign debt crisis clouded some European economies.

Officials targeted a deficit of 6 percent of GDP in 2011, down from previously estimated 7.7 percent.

The government is working to hold down public-sector pay packet and freeze tax loopholes to save 30 billion euros (41.35 billion dollars) this year to hit the target.

"We are confident the deficit will be less than 7.7 percent of GDP which means we will meet the rate of 6 percent in 2011, even better as the government policy bore fruit," said Budget Minister Francois Baroin.

"We will make these savings. We have no choice ... We' re sincere ... We have all the reasons to believe and reinforce these growth forecasts. The growth is fragile but it exists," Baroin added.

French President Nicolas Sarkozy repeatedly vowed to make it top priority to improve the country's economic indicators during his remaining 14-month mandate.

"We won't repeat the story of some countries in Europe, which face insurmountable difficulties. If we do not make the needed efforts at the right moment, the price to pay will be heavier," Sarkozy said.

"France can not continue to accumulate deficits in budgets as it has for 30 years," he added.

France, struggling to trim the soaring budget deficit, has managed to save 1 billion euros (1.37 billion dollars) last year after collecting 273.3 billion euros (376.75 billion dollars) of revenue in 2010.

However, the slight increase was not enough to offer a solid base.Doubts remain.

"I don't see the same economic outlook as the government's one because several issues have to be taken into account such as the risk of a new downturn in world market and soaring oil prices," said Xavier de Villepion, an analyst at Global Equities.

The rating agency Standard & Poor's confirmed the triple-A rating of France, saying the country could adopt necessary measures to achieve its goal of reducing the budget deficit.

A report issued last December by the agency said France's rating reflected that the county's economic and political well-being remained sound and stable.

However, Finance Minister Christine Lagarde voiced her concerns about the rosy economic outlook, saying more efforts were needed to improve the financial status quo.

"I think we have gone through the worst of the crisis but this doesn't mean that we have solved all the problems, especially financial mechanisms to bring down sovereign debts. We have to do much more," She said.

Source: Xinhua
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