March 26, 2015 / 7:36 AM / in 2 years

France cuts 2015 deficit target, eyes economic recovery

PARIS (Reuters) - France cut its budget deficit target for this year on Thursday and said economic growth could beat the government's 1 percent forecast, after reporting a smaller-than-expected fiscal gap for 2014.

Finance Minister Michel Sapin said France, which has repeatedly missed its fiscal targets, is confident it will finally bring the deficit below an EU cap of 3 percent of GDP on schedule in 2017.

The budget gap dropped to 4.0 percent of economic output in 2014 from 4.1 percent in 2013, statistics office INSEE said. The government's latest forecast had been for an increase to 4.4 percent.

The data "paves the way for a revision of the 2015 public deficit to about 3.8 percent of GDP," Sapin said in a statement, revising the target down from a previous 4.1 percent.

The euro zone's second-largest economy grew by 0.4 percent in 2014, data confirmed on Thursday, the same pace as in 2013.

"A lower-than-expected deficit brings confidence," Sapin told iTELE television. "We will do better than 1 percent (economic) growth in 2015."

The lower-than-expected deficit last year was partly thanks to local authorities. While they had in the past largely contributed to France missing fiscal targets, their deficit eased last year, as did the social security deficit. The central government's deficit increased by less than forecast.

President Francois Hollande, during his 2012 election campaign, had pledged to bring the deficit down to the EU limit by end-2013 but his government has since pushed the target back several times.

European Union finance ministers this month gave France two more years to cut the deficit to the 3 percent limit, extending the deadline for the third time since 2009 but asking it to beef up its reform efforts and savings.

"The government is fully confident that it can bring its public deficit below 3 percent in 2017, while helping the economic recovery," Sapin said in the statement.

The government will now update its 2015 budget in mid-April and its reform plan, which will be key to avoiding any risk of EU sanctions.

The government and the European Commission had both said France would need to make up to 4 billion euros in extra savings this year, but Paris had already hinted it was hoping that 2014 data would be better than expected and help lower the bill.

France's gross public debt rose last year to 95 percent of gross domestic product, from 92.3 percent in 2013.

Last year's deficit was still higher than the 2014 budget's initial target of 3.8 percent of GDP, and economic growth of 0.4 percent was slow although it was supported by stronger consumer spending and exports, helped by lower oil prices and a weaker euro, the INSEE data showed.

The economy appears to be improving this year and French business morale was at its highest for nearly three years in March, but growth is not yet strong enough to halt rising unemployment, data showed on Wednesday.

"Things are falling into place to back the scenario of growth accelerating in 2015," Credit Agricole economist Axelle Lacan said.

For a graphic of GDP: link.reuters.com/pyx28s

More INSEE details on GDP: here

Writing by Ingrid Melander; Editing by Susan Fenton

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