Deficit reduction to remain focused on France's expenditure cuts

The public deficit trajectory and strategy of France government have been left broadly unchanged since PM Valls took office and France gained two more years to comply with the Maastricht criteria. The government projects the deficit-to-GDP ratio to fall from 3.9% in 2014 to 3.8% in 2015 and 3.3% in 2016. This would be consistent with public debt reaching 96.5% in 2016 after 96.3% in 2015.

Taking into account an assumed acceleration of potential growth from 1.1% in 2015 to 1.5% in 2016 (upwardly revised from 1.3%), France's structural adjustment would be 0.5pp in 2016 after 0.4pp in 2015.

Owing to lower inflation reducing the effectiveness of some of the initially planned measures, the government recalibrated the €50bn savings plan, but remains on target with its strategy, bringing welcome stability. The government has planned an additional €16bn worth of savings (instead of €14.5bn in the PLF 2015) after €18.6bn in 2015 (instead of €21bn in PLF 2015), which should benefit from a better growth and inflation outlook, notes Barclays.

Finally, it is worth highlighting that the central state instead of social security will assume the financing of some of its flagship measures, implying that the central state deficit will only decline slightly to €72bn in 2016 from €73bn in 2015, added Barclays.