EU sees France missing deficit target

Updated 08 November 2012
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EU sees France missing deficit target

PARIS: The European Commission sees France missing its target of cutting its public deficit to 3 percent of output next year because of slower-than-expected growth, throwing a deficit-cutting trajectory into doubt.
The EU's executive arm saw economic growth in France of just 0.4 percent next year, half the 0.8 percent level on which the government's 2013 budget is based.
In its autumn forecast, the Commission said that France's budget deficit would fall to 3.5 percent of gross domestic product next year, above the EU target, and would only drop below 3 percent in 2014.
"After three quarters of stagnating GDP and historically low levels of corporate profitability, prospects for an imminent recovery have waned," the report said. "Specific downward risks relating to the French economy weigh on the potential recovery."
The forecast matches International Monetary Fund estimates for growth and deficit reduction and is slightly more optimistic on GDP than a Reuters poll of economists, which predicts growth 0.3 percent next year.
France's 2012 deficit is seen around 4.5 percent of output.
The Commission's forecasts chime with the views of many economists who believe Socialist President Francois Hollande has based his budget on over-optimistic growth targets as the country struggles to rebound from three quarters of stalled output.
In September Hollande unveiled France's toughest budget in 30 years, relying on a combination of hefty tax hikes for companies and the wealthy and checks on public spending to bring the deficit down by 30 billion euros.
Hollande's fiscal credibility is under scrutiny from foreign investors who are concerned France's record-low bond yields do not accurately reflect the fragility of its economy.
Bank of France Gov. Christian Noyer said last month he believed that Hollande's Socialist government would be able to meet the 3-percent target but expressed regret that the government was not cutting spending.
The Commission said that tax hikes programmed in the 2013 budget were likely to weigh on consumer spending as well as employment, holding up recovery next year, while declining competitiveness could reduce exports.
It also highlighted stronger capital requirement for banks as potentially limiting new lending, which would have a knock-on effect for investment and business sentiment on the whole.


Saudi Arabia’s economy in a ‘sweet spot’, says US bank

Updated 5 min 35 sec ago
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Saudi Arabia’s economy in a ‘sweet spot’, says US bank

  • Bank of America Merrill Lynch Global Research: “With a more entrenched current account surplus possible this year, FX reserves could increase.”
  • “Reforms are likely to broadly proceed, even at these levels of oil prices, although spending may increase further above baseline expectations.”

LONDON: The Saudi Arabian economy is in a “sweet spot”, with higher oil prices allowing the Kingdom to boost spending while not having a significant impact on the country’s fiscal balance, according to Bank of America Merrill Lynch Global Research.

“Our meetings on Saudi Arabia comfort us in our view that the economy is in a sweet spot. Higher oil prices are allowing the focus on boosting activity not to materially impact fiscal balances,” the note said, published following the IMF and World Bank Spring meetings held in Washington DC this month.

“With a more entrenched current account surplus possible this year, FX reserves could increase this year,” the note said.

The bank forecasts the country will continue to push forward with its reform process regardless of the rising price of oil. Many of Saudi Arabia’s reforms are part of its Vision 2030 that aims to diversify the country’s economy away from its reliance on oil.

Brent oil reached a three-and-a-half year high on 19 April, hitting $74.74 a barrel.

“Reforms are likely to broadly proceed, even at these levels of oil prices, although spending may increase further above baseline expectations,” the note said.

The bank was also upbeat about Egypt’s economic prospects, noting that the country’s “macro stablization” is continuing and that its reform program, which includes cutting fuel subsidies and reforming the tax system, remains “intact”.

“Authorities are on track to achieve a small 0.2 percent of GDP primary surplus this fiscal year. The target is to bring the primary surplus to 2 percent of GDP next fiscal year, and maintain it there going forward,” it said.