By Leigh Thomas
PARIS (Reuters) - France's economy is set to grow 1.6 percent annually through to 2020 as unemployment steadily falls, the central bank forecast on Friday, trimming slightly its previous growth outlook.
The Bank of France had previously forecast growth of 1.8 percent in 2018 and 1.7 percent in 2019, but said the first half of this year was weaker than anticipated and foreign demand was now expected to be softer than previously expected next year.
With its updated outlook, the central bank is more pessimistic than the government, which is basing its 2018 budget on the assumption the economy will grow 1.7 percent this year and next year.
The outlook also indicated France is likely to lag the broader euro zone after the European Central Bank forecast on Thursday that the bloc would grow 2.0 percent this year, 1.8 percent in 2019 and 1.7 percent in 2020.
"France is still lagging on growth because France is still lagging on reforms," Bank of France governor Francois Villeroy de Galhau told Europe 1 radio.
Villeroy added that while France had recently carried out important reforms, especially on training, there remained a lot to do to rein in spending.
In the central bank's outlook, unemployment was seen gradually falling from 9.1 percent in the second quarter to 8.3 percent by the end of 2020, the lowest level since the end of 2008, as the global financial crisis was breaking out.
As unemployment fell and households' purchasing power picked up, consumer spending was expected to accelerate over the coming years, helping to offset slower business investment.
Meanwhile, inflation was expected to peak this year at 2.1 percent following higher energy prices, before easing back to 1.7 percent in 2019 and 1.8 percent in 2020.
(Reporting by Leigh Thomas; Editing by Sudip Kar-Gupta)