France: 2014 Budget in the Spotlight


In its newly-released 2014 budget, the government modified its GDP forecast for next year from 1.2% to 0.9% – in line with our own panel’s expectations – and indicated that the budget deficit would overshoot the 3%-of-GDP target by an extra year. To be fair, France has experienced recession and austerity this year, making fiscal consolidation that much harder. Policymakers have attempted to support the fledgling recovery (which saw daylight in Q2 2013) by pushing the 3% deficit limit to 2015 and gradually easing the pace of fiscal tightening. The budget also aims to shift some of the burden of consolidation away from corporate tax hikes and towards public sector cuts. However, public sector unions are unlikely to be thrilled by the cuts, while some business leaders indicate that a tax rebate for firms that hire new workers does little to offset regulation, social security contributions and a new 1% tax on profits larger than €50mn. Households, meanwhile, could be facing a 75% marginal tax rate on salaries higher than €1mn and VAT hike from 19.6% to 20%. Our panel does show the deficit narrowing next year, but a still-sizeable public sector and declining tax receipts means that funding these public commitments is a difficult task.

Manufacturing production rose by 0.3% (m-o-m) in August following a 0.8% contraction in July, due in large part to a 19.5% monthly surge in auto output. However, other sectors were weak and in y-o-y terms, the decline in production extended from -2.5% in July to -3.8%. September’s manufacturing PMI remains just below the 50 level, indicating that manufacturing still has some ways to go before it, too, climbs out of recession. Lack of trade competitiveness is not helping the 2013 production outlook which remains shaky.


You can download a sample of Consensus Forecasts G-7 and Western Europe at

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