OECD Boosts France Growth Estimates But Warns on Spending

--Higher Interest Rates Could Drive Debt Burden Well Above 100%/GDP,

Organization Warns. 

By Jack Duffy

     PARIS (MNI) - The French economy is set to grow by the most rapid pace

since 2011 but inflation will remain low and high government spending will

continue to increase France's debt burden, the Organization for Economic and

Cooperation and Development said Thursday. 

     In a survey of the French economy, the Paris-based OECD forecast growth of

1.7% this year and 1.6% in 2018, up substantially from estimates of 1.3% and

1.5%, respectively, made in June.

     As elsewhere in the Eurozone, the expansion in France is being driven by

rising household consumption as unemployment declines and by increasing business

investment as the European Central Bank keeps financing rates at record lows,

the OECD said.  

     "The economy, although still a bit weaker than the euro-area average, is

expanding, and the labour market is gradually recovering," the organization

said.

     France's chronically high unemployment rate is set to fall to 9.3% by next

year but will remain about twice the level in Germany. President Emmanuel Macron

is trying to boost job creation by making it easier for companies to hire and

fire, but he is facing stiff opposition from trade unions. An estimated 200,000

union workers marched to protest the labour code changes on Tuesday and more

demonstrations and strikes are planned over the next two weeks. 

     Faster growth and improving employment won't have much immediate impact on

inflation, the OECD said, with France's headline consumer prices expected to

rise by just 1.1% this year and 1.0% next year

     On the fiscal front, the OECD said France was likely to meet its deficit

target of 3% of GDP this year and next but it warned that rapid government

spending -- which at 56.4% of GDP in 2016 was the highest among OECD countries

-- would continue to push up public debt. 

     "Should interest rates rise more than expected, debt would quickly

increase, seriously shrinking room for fiscal policy manoeuvre in the wake of

any unanticipated shocks," the OECD said. 

     Public debt is likely to reach 97.9% of GDP in 2018, the OECD said, and

warned that with increase in debt service costs of 1.4 percentage points, public

debt could climb to 120% of GDP by around 2030. 

     "A long-run strategy is needed to contain public spending, ensure debt

sustainability and make room for further tax cuts and simplification," the OECD

said.

--MNI Paris Bureau; tel: +33 1-42-71-55-41; email: jack.duffy@marketnews.com

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