France Will Avoid Recession Due To Tax Cuts, Economists Predict

by Ulrika Lomas, Tax-News.com, Brussels

21 May 2003

France managed to avoid falling into recession in the first quarter of 2003 due to previous tax cuts which have boosted consumer spending, economists have claimed.

According to Bloomberg, which surveyed the economists' expectations of French first quarter growth, taking the median estimate, the economy grew a meagre 0.2% in the first quarter. However, this is a slight improvement on the 0.1% contraction recorded in the last quarter of 2002. Therefore, France has avoided falling into the technical definition of a recession, which requires two consecutive quarters of negative growth.

Commenting on the country's economic performance, economist Jacques Cailloux of Barclays Capital told Bloomberg: "Tax cuts have had a very strong impact on consumer spending."

However, Cailloux warned that the overall growth trend was likely to remain negative, as the high value of the euro against the dollar begins to hurt French exporters and rising unemployment saps consumer spending power. France's European trading partners such as Germany, Italy and Holland are also experiencing similar recessionary trends.

Despite suffering from a rising budget deficit and violating the terms of the EU growth and stability pact by allowing its deficit to breach the 3% of GDP limit, French Finance Minister Francis Mer has said that his government will continue to follow a policy of lowering taxes.

Speaking on a recent national radio interview, Mer stated that: "Tax rates must keep coming lower," adding: "It's the only way we can create the conditions through which we will build growth."

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