UPDATE 3-France facing up to minimal economic growth this year

Tue Feb 19, 2013 6:12pm EST

* Hollande acknowledges France will miss 2013 growth target

* Foreign minister leaks bad news first for second time

* France in battle to keep face as targets prove elusive

By Alexandria Sage and Jean-Baptiste Vey

PARIS/ATHENS, Feb 19 (Reuters) - President Francois Hollande acknowledged on Tuesday that France will miss its 0.8 percent 2013 growth target, hours after his foreign minister said the growth rate could come in at less than half that level.

Laurent Fabius told RTL radio that French growth this year would be no better than around 0.2 to 0.3 percent.

It was the second time in a matter of days that Fabius, a prime minister in the 1980s and one of the most senior members of the government, let the truth slip about France's economic outlook after revealing last week that the deficit goal would be missed.

"Since on the European level things don't seem to be going so well, we will be obliged to lower it," Fabius said of the growth target.

Hollande's confirmation that the target would be missed - made during a visit to Greece - will add to concerns that the euro zone's second-largest economy is on the brink of recession.

Data last week showed it shrank in the final quarter of 2012.

"For 2013, everyone knows we will not reach the 0.8 percent that was predicted," Hollande told a joint news conference with Greek Prime Minister Antonis Samaras.

He said France would wait for the European Commission's new economic outlook, due on Friday, before issuing a new target at the end of March.

The admission that the growth goal will be missed, having already been cut in September from an initial target of 1.2 percent, also pushes France's deficit-cutting goals further out of reach.

The government has defended its growth and deficit goals for months against misgivings from economists, as it battles to maintain credibility with EU partners and rating agencies, but admitted last week it would fail to cut the 2013 public deficit to within an EU ceiling of 3 percent of GDP.

"We're one of the countries that today, in terms of growth plans or in any case activity, is in the least bad situation," Hollande said. "But we're far from our goals."

French benchmark 10-year bond yields, however, were barely changed at 2.26 percent. For all its economic problems, investors still treat France as a core euro zone economy.

Bank of France Governor Christian Noyer told the Wall Street Journal that the French government should maintain its current plans for its finances this year and clarify where spending cuts could come from in the future.

"If there is a small nominal distance from the 3 percent but a significant effort on public spending, it is something that will be understood and appreciated by markets," Noyer said, referring to the EU ceiling for deficits at 3 percent of GDP.

He also said France should avoid hurting businesses by cutting spending on pensions instead of boosting taxes, according to the WSJ.

MORE SPENDING CUTS LOOM

Fabius said that the missed target meant additional savings would be required at both the national and regional levels, without giving details.

On Monday, Finance Minister Pierre Moscovici would not comment on a media report the Socialist government may add some 5 billion euros ($6.68 billion) onto the 60 billion euros in spending cuts it is already targeting over five years.

He said Paris could tweak its fiscal plans after talking to the Commission about its new outlook.

Conservative politicians accused the government of bungled communications, after Fabius appeared for the second time to pre-empt an official revision to economic targets which would usually come from the president, prime minister or finance ministry.

Prime Minister Jean-Marc Ayrault - who was forced last week to respond to Fabius' remark on the deficit and acknowledge the minister was correct - played down the muddle.

"There is no cacophony," Ayrault told reporters in Paris.

"The European Commission will announce its growth estimates for France and each European country on Friday. The government will then announce the decision it will take."

FILED UNDER: