France sees slower growth stalling deficit reduction in 2023

PARIS (Reuters) - French economic growth will slow sharply next year in the face of mounting geopolitical risks, pushing back improvement in the public sector budget deficit until afterwards, the Finance Ministry said on Thursday.

Updating its long-term forecasts, the ministry said growth in the euro zone's second-biggest economy was now expected to slow from 2.5% this year to 1.4% next year.

"The geopolitical uncertainties are huge both in terms of energy and trade," Finance Minister Bruno Le Maire told journalists, citing the risk of a cut in Russian gas, lockdowns in China and a slowdown in the U.S. economy.

Growth was seen gradually picking up to 1.8% in 2027 as the economy benefited from planned reforms ranging from the pension system to unemployment insurance, Le Maire added.

As a result of the lower growth next year, the public sector budget deficit was seen unchanged from this year at 5% of gross domestic product. It would be gradually reduced afterwards to within an EU-limit of less than 3% by 2027, the ministry said.

That would be achieved by keeping annual real public spending growth to an average of 0.6% over the next five years, which Le Maire said was the lowest in 20 years.

"The nation's growth has to increase faster than public spending," Le Maire said. While central government was expected to trim spending growth by 0.4% on average and local governments cut by 0.5%, social spending would be allowed to grow 0.6%.

The following are the Finance Ministry's main macroeconomic forecasts for the next five years. Deficit and debt are as a percent of GDP.

2022 2023 2024 2025 2026 2027

GDP growth 2.5 1.4 1.6 1.7 1.7 1.8

EU-hamonised 5.1 3.3 1.9 1.8 1.8 1.8

inflation

public sector -5.0 -5.0 -4.6 -4.0 -3.4 -2.9

budget balance

public debt 111.9 111.7 112.8 113.3 113.2 112.5

(Reporting by Leigh Thomas; Editing by Catherine Evans)