Ratings agency Moody’s has significantly cut its growth forecast for GDP in France amidst concerns that the government is failing to clarify plans for massive spending cuts needed to boost the economy.
A report issued today by Moody’s slashed its GDP forecast for France in 2014 to 0.6 per cent compared to its earlier forecast of 1 per cent.
The ratings agency also reduced its forecast for 2015 to 1.3 per cent from its previous prediction of 1.5 per cent.
The French government recently announced a series of spending cuts totalling €18bn (£14.3bn) in 2014 and €50bn (£39.7bn) between 2015 and 2017, as a way of funding tax cuts that are designed to boost competitiveness
Moody’s does acknowledge this action from the French government but argues that the details of many of these measures remain “unspecified.”
It says: “Moody’s notes that 60 per cent of the planned expenditure cuts for 2015-17 remain unspecified, a vulnerability that has also been highlighted by both French domestic institutions such as the Cour des comptes and international observers including the EU and IMF.”
The lack of clarity surrounding the planned cuts amidst the ongoing economic weakness and “challenging political environment” could potentially lead to France missing its fiscal targets in both 2014 and 2015, it adds.
Moody’s also highlights the difference between how France is tackling its spending cuts compared to other countries of with a similar Aa1 rating, including the UK.
It says: “While headline debt and deficit numbers for France and the UK (Aa1 stable) do not differ significantly at the moment, the UK has a stronger track record of fiscal consolidation, will see its debt burden peak at a lower level and has already been able to execute a very significant package of expenditure cuts since 2010.”