French budget deficit forecast to hit 9% of GDP, a postwar record

The French government's budget deficit is set to hit a postwar record of nine percent of economic output this year due to the prolonged coronavirus lockdown, the budget minister said on Monday in the second revision in less than a week.

A lone commuter at the deserted Gare de Lyon train station in Paris on April 9, 2020.
A lone commuter at the deserted Gare de Lyon train station in Paris on April 9, 2020. © Stéphane de Sakutin, AFP

"Our country has never seen such a deficit since World War Two," Gérald Darmanin told France Info radio as he announced the latest figure, up from the 7.6 percent forecast only last week.

The budget minister was speaking a day after President Emmanuel Macron extended a nationwide lockdown over the coronavirus pandemic until May 11.

The massive relief effort for bars, restaurants, hotel, shops and other businesses closed during the lockdown will inevitably weigh on France's budget deficit, Darmanin said.

"Each day, each week of confinement... is worsening our public finances," he said, adding that France's debt pile would soar to 115 percent of GDP, up from just under 100 percent last year.

Both forecasts are well above the limits set by the EU's Stability and Growth Pact, which call for deficits to be capped at three percent of GDP, and a debt-to-GDP ratio of 60 percent.

But EU officials have already signalled the rules will be suspended as governments scramble to contain the economic fallout and prevent mass bankruptcies and layoffs.

In a separate interview, with RMC radio, Finance Minister Bruno Le Maire said the French economy would shrink by as much as eight percent due to the shutdown.

Le Maire had forecast a six percent GDP drop last week, but the figure was revised upward following Macron's speech on Monday.

The finance minister said government aid for smaller companies at risk of going under would be raised to as much as €5,000 ($5,470), up from €1,500 previously.

The total amount of this rescue fund would now reach seven billion euros, he said.

Out of a global perspective, the International Monetary Fund (IMF) on Tuesday said it expects the world economy to suffer its worst year since the Great Depression of the 1930s.

In its forecast, it predicts the global economy to shrink 3 percent this year — far worse than its 0.1 percent dip in the Great Recession year of 2009 — before rebounding in 2021 with 5.8 percent growth. The IMF acknowledged, however, that prospects for a rebound next year are clouded by uncertainty.



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