Growth, deficit: the government is lowering its ambitions for 2020

The government now expects growth of 1.3% next year, lower than the +1.4% that was expected two months ago. This slight slowdown and the deadlock in certain economies lead to an increase in the forecast deficit, now set at 2.2% of GDP (against 2.1% expected in July), almost the same level as in 2019 excluding exceptional items . Public spending will increase by around 25 billion.

The government has waived the additional savings that were envisaged in July.

Officially, the government continues to follow the same roadmap for restoring public accounts. The finance bill for 2020 which will be presented at the end of the month, however, shows signs of a pause, while the embers of the social crisis do not seem completely extinguished. The government is indeed targeting a deficit of 2.2% of GDP in 2020, according to the document sent Friday to the High Council of Public Finance, while the forecast was 2.1% two months ago and even 2% in last April.

“We have to go back to 2001 to find a deficit below”, we rejoice in Bercy. However, French public finances seem to be on a plateau, rather than on a steep downward slope. On the face of it, this figure for next year would certainly reflect a sharp drop from the 3.1% deficit expected this year. Except that the latter incorporates an exceptional element, the transformation of the CICE into a reduction in long-term costs. Restated for this effect, the deficit for 2019 should rather navigate around 2.2% or 2.3%, which is almost the level expected for next year …

The same trend, moreover, for the structural deficit (excluding economic factors) which will be stable from one year to the next, in reverse of the reduction demanded by the European Treaties. As a result, the level of public debt should hardly budge, at 98.7% of GDP (98.8% in 2019).

Growth above that of the euro zone

This grayer scenario than that hoped for last spring can be explained in half by the deterioration of the economic environment, according to experts in the executive. The government is now seeing growth stand at + 1.3% next year, whereas it was hoping for + 1.4% two months ago. This would mark a slowdown from the +1.4% still expected this year. However, “France would remain above the average for the euro zone, which should see an increase in economic activity of + 1.2%”, we assure Bercy.

This scenario is based on the hypothesis of an exit of the United Kingdom from the European Union via an agreement, but a “hard Brexit” would not fundamentally change the situation, estimate the budget experts of the ministry.

The other explanation for these degraded accounts comes from the consequences of the “yellow vests” movement. At the end of the Great Debate, Emmanuel Macron decided for around 6.5 billion euros of new measures (lower income tax and reindexation of part of pensions) which were ultimately only very partially funded. The government has in particular given up on finding the 3 billion euros of additional savings that it envisaged at the beginning of the summer. Added to this are a few gestures conceded here and there – such as that linked to the emergency strike – which have lengthened the bill.

Relaxation of the effort

In the end, public spending should therefore grow by just under 25 billion euros next year, an increase in volume (excluding inflation) of 0.7%. In July, expected growth was + 0.5%, a sign that efforts have eased slightly. “The objective of reducing the weight of public spending by 3 points of GDP (over the five-year period) is still online”, we argue in Bercy. The rate will be 53.4% ​​of GDP in 2020, against 53.8% in 2019.

In this table, the continued steep drop in interest rates turns out to be a divine surprise for Bercy managers. They anticipate a drop of 3 billion in the debt load in 2019 compared to expectations a year ago, and another 5 billion next year. Enough to fill part of the slippage.

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