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France to seek extra spending cuts, sticks to growth targets

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France on Wednesday said it would curb public spending more to offset lower-than-expected inflation but stuck to growth forecasts of 1.5 per cent for this year and next despite more pessimistic forecasts by international organisations.

[PARIS] France on Wednesday said it would curb public spending more to offset lower-than-expected inflation but stuck to growth forecasts of 1.5 per cent for this year and next despite more pessimistic forecasts by international organisations.

To meet its deficit reduction targets, Paris will seek extra spending cuts of 3.8 billion euros (S$5.84 billion) this year and 5 billion euros in 2017 compared to what was planned in this year's budget bill, the finance ministry said.

The additional spending cuts, which the government said would come from the state and social security budgets in 2016 as well as lower interest rates, were made necessary by sharply lower inflation brought about by the drop in oil prices.

In a so-called stability programme which euro zone members send to the Commission, the ministry said it was cutting its inflation target to just 0.1 per cent for 2016, down from the 1.0 per cent it had foreseen in the 2016 budget bill voted last year.

sentifi.com

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Lower inflation reduces the government's sales tax receipts, which is why France will need the extra spending cuts to meet its public deficit targets, kept unchanged on Wednesday, of 3.3 per cent this year and 2.7 per cent in 2017.

France cut its public deficit more than expected last year, to 3.5 per cent, after having won a two-year reprieve from its euro zone peers to bring the shortfall below the EU cap of 3 per cent of economic output.

However, slower global growth, especially among big emerging markets such as China, Russia and Brazil, is making economists doubt the Socialist government's growth targets.

On Tuesday, the International Monetary Fund cut its global growth forecast for the fourth time in a year and said it now expected France's economy to grow by 1.1 per cent in 2016 and 1.3 per cent in 2017.

REUTERS

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