Budget minister Valérie Pécresse told parliament on Tuesday that the French budget deficit for 2011 would "probably be less than 5.5 percent."

"/> Budget minister Valérie Pécresse told parliament on Tuesday that the French budget deficit for 2011 would "probably be less than 5.5 percent."

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Deficit to fall below 5.5 percent in 2011: minister

Budget minister Valérie Pécresse told parliament on Tuesday that the French budget deficit for 2011 would "probably be less than 5.5 percent."

Published: 25 January 2012 10:52 CET

Deficit to fall below 5.5 percent in 2011: minister

Budget minister Valérie Pécresse by Marie-Lan Nguyen

The total figure for the 2011 deficit is now expected to be €90.8 billion ($118 billion), a drop of €4.6 billion on the last estimate.

If her prediction is right, the official figure would be lower than the most recent predictions of 5.7 percent and would signal optimism in the government’s deficit cutting programme.

France hopes to reduce its deficit to 4.5 percent in 2012 and then 3 percent in 2013, with plans to balance the budget by 2016.

To reach these targets a total of €65 billion ($85 billion) of cuts and tax rises have been planned through 2015.

“These good results bear witness to the rigour, sincerity and responsiveness with which the government is managing the public finances,” said the minister.

The International Monetary Fund reported some less optimistic figures about France’s deficit cutting programme on Tuesday, reported business daily Les Echos.

The IMF predicts the deficit will fall to 4.8 percent in 2012 and then to 4.4 percent in 2013, higher than the 4.5 percent and 3 percent predicted by the government.

The IMF also expects growth to slow to just 0.2 percent in 2012 before increasing to 1 percent in 2013.

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How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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