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August 22, 2010    

France lowers economic growth forecast

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by Kay Murchie
France lowers economic growth forecast

The euro zone’s second largest economy has lowered its economic growth forecast following a meeting between the President Sarkozy and senior finance ministers.

The French President requested that ministers interrupt their summer holidays to discuss how France is going to tackle its deficit.

Following the meeting, a statement said the economy will expand by 2% next year, down from the previous forecast of 2.5%.

It added the country‘s main objective is to cut the deficit from 8% in 2010 to 6% in 2011.

It will need to find €100 billion in savings in order to achieve this.

Many other economies have introduced tough measures to reduce their deficits but President Sarkozy has pledged not to hike VAT, income tax or tax on companies.

Meanwhile, France’s 1.4% forecast for this year’s growth is in line with that of the International Monetary Fund (IMF).

However, for 2011, the IMF expects the French economy to grow by 1.6% - less than the Government’s forecast.

Many economists believe the Government’s forecast for 2011 is too optimistic.

Gilles Moec from Deutsche Bank expects the French economy would grow nearer 1% in 2011 and believes the forecast to be “ambitious”.

The downward forecast comes as the euro zone’s largest economy, Germany, has lifted its growth forecast.

Germany’s central bank, the Deutsche Bundesbank, said the economy is expected to grow by 3% this year – much higher than its previous forecast of 1.9%.

Figures recently revealed the German economy grew by a record 2.2% in the second quarter – the fastest quarterly growth in 20 years.

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