Western stock markets kept a good tone of the last sessions yesterday, which allowed some index to close the day with slight gains. Some of the main European indicators showed their highest levels in two years. The credit market looks positive too.
However, the attention was put on France after the Government announced its third review of the public deficit (the previous two took place in May 2012 and April 2013) to 4.1% by 2013 (from 3.7% of April) and 3.6% by 2014 (from 2.9%). Paris now anticipates a growth of only 0.1 percent this year and 0.9% in 2014 (from the +1.2% for 2014). With unemployment reaching the past 15 years’ maximum (10.9% in Q2) and a slow economic recovery, the authorities also announced a relaxation of the fiscal pressure at the corporate level. Despite these announcements, the French 10-year-bond closed 4pb.
The European Commission gave France a two year extension to reduce its budget deficit to 3.0%. On the other hand, the French Government indicated that budgets in 2014 include an adjustment of EUR 18bn of which 15 billion correspond to reduction in expenditure and 3bn to an increase in revenue, analysts at Link Securities Analysts remind.
“As far as taxes are concerned the French administration is very efficient, but in terms of cutting public spending they really need to prove they can do it. We have some doubts they will see this fully through,” said Societe Generale economist Michel Martinez, whose growth forecasts are lower than the government’s, to Reuters.