PARIS (MNI) – French Finance Minister Christine Lagarde said Sunday
it was still too early to revise down the government’s forecast for 2.5%
GDP growth next year and that early indicators of activity were
promising.

Speaking in a radio interview, the minister also noted that the
spread of France’s borrowing costs over Germany’s had narrowed since the
announcement of the government’s pension reform program last week.

The markets may also have welcomed measures taken at the EU level,
she conceded. Still, the decline in the risk premium for French debt was
“rather satisfying,” Lagarde said, noting that the government’s triple-A
borrowing status remained stable and was “not questioned” by rating
agencies.

Lagarde admitted that it was “a bit audacious” to expect growth to
bounce back to 2.5% next year. Yet, “that doesn’t mean I don’t believe
it all,” she said, offering several reasons to the sceptical
journalists.

Typically, the rebound in growth after a severe slump is stronger
than expected, she claimed.

Moreover, some early indicators, like short-term employment,
container transports, publicity outlays and the morale of small business
executives, have all been “rather good,” she noted.

“It is too early in the year to envisage revising” the growth
forecast, she argued, leaving open the option of an adjustment after the
release of this summer’s hard data, including 2Q GDP results, which she
hoped would be “good.”

Lagarde denied that the 10% reduction in government operating costs
and economic and social subsidies over the next three years constituted
a downside risk for activity, explaining that measures to encourage
investment, like tax write-offs for businesses, the suppression of local
business taxes on investment and the government’s long-term structural
investment program, would not be affected by the consolidation measures.

In addition, there have been “good surprises” this year from the
strength of corporate tax returns and the low level of debt service
charges, she noted.

–Paris newsroom +331 4271 5540; stephen@marketnews.com

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