As growth in the Eurozone decelerates, the credibility of France and Italy’s budgetary policies have been called into question.
The French public audit office questioned whether the government’s projections of 1.7% GDP growth on February 6. If the projections were fulfilled, France would outpace Germany’s economic growth. The French audit office is calling for a revision of the growth forecast by the government “as soon as possible.”
French budgetary policy has little room for deviation as the government’s optimistic growth scenario is linked to the expectation of a 3.2% deficit forecast that breaks the 3% EU ceiling. The French deficit forecast is linked to an €11 billion euro package of tax and welfare concessions by President Emmanual Macron following the outbreak of the violent Yellow Vest movement protests that rocked central Paris late last year.
At the same time, the European Commission will slash Italy’s growth forecast for 2019 from 1.2% to 0.2% of GDP, according to sources cited by the Italian public news agency ANSA.
The IMF forecast is slightly more optimistic, projecting 0.6% growth in 2019. The Italian economy is currently in a recession after having experienced two consecutive quarters of negative growth. The prospects for a quick rebound do not look optimistic as the Italian national budget is founded on a growth forecast of 1% of GDP.
Italy’s lower growth projection threatens to reignite a standoff between Brussels and Rome over the budget deficit. The IMF has criticised the pension reform and guaranteed minimum wage proposed by the anti-austerity Italian government, especially amid global economic pressure.