September 18, 2017 / 11:29 AM / a year ago

Firm economic growth to ease French budget balancing act: ministers

PARIS (Reuters) - France’s economic recovery is strong enough for the government to be able to cut spending and the deficit without growth being affected, the budget and finance ministers said on Monday.

French Minister for Public Action and Accounts Gerald Darmanin leaves the Elysee Palace after the weekly cabinet meeting in Paris, France, September 14, 2017. REUTERS/Charles Platiau

Budget minister Gerald Darmanin confirmed that the 2018 budget to be presented on Sept. 27, the first of President Emmanuel Macron’s administration, would be based on a growth forecast of 1.7 percent.

“In the coming years, it will be 1.7 percent. We hope to do better, but we are exactly in the middle of what economists expect,” Darmanin told BFM TV.

Previous governments have faced criticism from economists for basing their budgets and deficit-reduction targets on overly optimistic growth forecasts.

Darmanin said that growth for 2017 was also estimated at 1.7 percent - a slight revision upwards from a previous government forecast of 1.6 percent - in what would mark France’s strongest economic performance since 2011.

“The recovery is solid and gives us options on reducing public spending,” Finance Minister Bruno Le Maire said in a joint interview with Darmanin in Le Monde.

Consumer and business confidence have reached levels not seen for several years following Macron’s election, as concerns about France’s stubbornly high unemployment have eased a touch.

The government had planned to cut spending next year by 20 billion euros, but a finance ministry source said stronger growth this year and slightly less budget tightening next year meant that figure could be reduced.

Cuts in 2018 now looked likely to be closer to 16 billion euros, the source said.

Darmanin said the spending cuts would not drag down growth as they coincided with reforms making the economy more competitive and less dependent on state handouts.

The government has little choice but to tighten its belt in order to respect promises to reduce the public deficit while it also aims to cut France’s considerable tax burden.

Financial daily Les Echos reported late on Monday that the government had revised its budget deficit forecast lower to 2.9 percent of output this year and 2.6 percent next year from an earlier projection of 3.0 percent and 2.7 percent respectively.

Although civil service wages are a major expense, Darmanin said the government would reduce headcount among state employees by only 1,600 next year, despite plans to cut the number of public workers by 120,000 over Macron’s five-year term.

Civil service unions have called a strike for Oct. 10 over concerns about wages and a welfare tax hike.

($1 = 0.8372 euros)

FILE PHOTO: French President Emmanuel Macron attends a joint statement with Dutch Prime Minister Mark Rutte (not pictured) at the Elysee Palace in Paris, France, August 31, 2017. REUTERS/Philippe Wojazer/File Photo

Reporting by Leigh Thomas; Addtional reporting by Yann Le Guernigou and Richard Lough; Editing by Richard Balmforth and Robin Pomeroy

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