JP Morgan concerned about French deficit

French deficit

“Our economists are worried that 2013 will be a disappointing year for France,” JP Morgan said Tuesday in an investor note in Madrid. Their expectations over the first three months point at a -1 percent GDP contraction.

French purchasing manager index, an indicator of private sector economic health, has fallen to early 2009 levels, and analysts fear that François Hollande’s government will need to introduce additional budget cuts on top of an already restrained fiscal policy to reach its target deficit of 3 percent. In 2012, France aimed at a fiscal consolidation equivalent to 0.7 percent of its GDP so the public deficit would be reduced to 4.5 percent down from 2011’s 5.2 percent. Preliminary figures show a deviation of €1 billion or a mere 0.05 percent. Yet, the route ahead looks steeper.

This year, the public administration will have to reign in spending by €10 billion while increasing tax pressure on companies and households by €26 billion, according to JP Morgan.

“As past experience tells us, a 1.5 percent-of-GDP consolidation is hard enough to usually end missed,” JP Morgan researchers explained, “and France risks closing the year at 0.5 percent over the target unless the government takes further measures. The reason for this is that we expect GDP growth of 0.2 percent instead of the official calculations of 0.8 percent.”

Analysts estimate that the maximum volume of debt per GDP could spike up to 92.9 percent in 2014 against 91.3 percent in 2013 as suggested by the French government.

“Probably, it would matter little if the French deficit is half a percentage point higher than it should. The problem,” JP Morgan warned, “is that the government would then implement more austerity programmes and enter, then, the depressing cycle we have witnessed in other countries of the eurozone.”

About the Author

Victor Jimenez
London contributor at, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.

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