France is expected to avoid slipping into recession in the first quarter, but growth is unlikely to be strong enough for euro zone's No. 2 economy to hit its deficit target for 2013, reports The Wall Street Journal.
The Bank of France expects output to expand 0.1% in the quarter, it said on Friday, easing fears the country may post two consecutive quarters of contraction, after the economy shrunk in the last three months of last year at the fastest rate since early 2009.
But the expected first-quarter rate is considerably lower than the 0.8% forecast that the government used as a basis to cut its deficit this year, and could well force President François Hollande to renege on one of the key promises he made during the election campaign that took him to power last year: bringing the budget deficit down to 3% in 2013.
Weaker-than-expected growth will hit French tax revenue, while welfare costs will rise and government spending will become larger relative to a smaller economy.
In survey results released on Friday, the Bank of France recorded a rise in business sentiment in the industrial sector to 96 in February from 95 in January, and a fall of confidence in the services sector to 88 from 90.
The central bank's growth prediction comes just two weeks after the European Commission cut its forecast for France to 0.1% for 2013, from 0.4%.
The commission expects the deficit to reach 3.7% of GDP this year and 3.9% in 2014 if the government makes no changes to its policies. Data also published on Friday by the Budget Ministry showed the deficit widened in January by €300 million ($393.2 million) compared with the same month a year earlier, with the overall shortfall reaching €12.8 billion.
In an attempt to salvage France's budget targets, Prime Minister Jean-Marc Ayrault said on Friday the central state needs to find €5 billion of savings in 2014, mainly from spending cuts. Ministers will debate the cuts this month and next.
Until now, the government has focused its efforts on tax increases as it battles to reduce the budget deficit. But government policies, which include more than €27 billion of fresh taxes in less than a year, have been insufficient as economic growth has collapsed.
But the spending cuts announced on Friday, worth a mere 0.25% of GDP, appear too small to bring France's public finances back on track unless sustainable growth is achieved.
Read more of this report from The Wall Street Journal.