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France to marginally overshoot EU deficit limit this year

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By Reuters

PARIS (Reuters) – France will only slightly overshoot the European Union’s deficit target this year despite extra fiscal strain from a package of concessions to anti-government protestors, updated forecasts from the Finance Ministry showed on Wednesday.

President Emmanuel Macron’s government has long-expected a temporary spike in the deficit this year as a payroll tax credit scheme is transformed into a permanent tax cut.

However, facing a series of violent protests against the high cost of living and anti-elitism, Macron announced a more than 10 billion euro (£8.5 billion) package of measures in December to boost the incomes of the poorest workers and pensioners.

As a result the government had initially expected the deficit to swell to 3.2 percent of gross domestic product, overshooting the European Union’s 3-percent deficit target.

After growth last year was revised up slightly, the government has now marginally trimmed its deficit forecast to 3.1 percent, according to public finance forecasts the Finance Ministry is to send to the European Commission this month. [L8N21K5SD]

Following growth last year of 1.6 percent, the government now expects the economy to expand 1.4 percent annually from this year through to the end of Macron’s term in office in 2022, the forecasts showed.

Previously the government had expected annual growth of 1.7 percent in the coming years, but Finance Minister Bruno Le Maire said the global slowdown was weighing on the outlook, even though France was doing better than Germany.

On top of that, Britain’s departure from the EU without a Brexit deal could further complicate the outlook, Le Maire said in an interview with Les Echos business newspaper.

“That will necessarily have bigger economic impact, but we’ve anticipated this risks and have taken the necessary measures at the request of the prime minister. French growth is solid,” Le Maire said.

After the spike in the deficit this year, it was seen dropping to 2.0 percent in 2020 and gradually falling to 1.2 percent by 2022, which would be less aggressive cuts in the public finances shortfall than previously expected.

The forecasts also showed that inflation-adjusted public spending was expected to keep growing over the coming years, despite pressure from institutions like the Bank of France to reduce it to zero.

(Reporting by Leigh Thomas and Myriam Rivet; editing by John Irish)