OECD Trims French Growth Forecast

The OECD trimmed its growth forecast for France on Tuesday but recommended the government avoid more spending cuts to meet it EU deficit reduction pledges.

The Organization for Economic Cooperation and Development said it now expects the French economy to grow by 0.1 percent this year, instead of the 0.3 percent it forecast earlier.

It said it expected France's public deficit would come in at 3.5 percent of economic output this year.

France had pledged to return to the 3.0 percent EU deficit ceiling this year, but the OECD forecast that this will only be achieved next year.

However the economic policy advisory body did not encourage France to make any additional spending cuts to meet the target.

"Deficit reduction efforts must continue as planned while letting automatic stabilizers operate fully," said the OECD in a survey of the French economy.

French President Francois Hollande last week publicly renounced the goal of hitting the 3.0 percent target in 2013, saying the public deficit would probably reach 3.7 percent of gross domestic product this year.

The OECD characterized the government's deficit reduction plans as "ambitious given current headwinds".

While urging the government to stick to plans to cut spending, the OECD urged a shift in taxes away from business and labor in a bid to boost competitiveness and growth.

The report noted that France's growth per capita over the past two decades has been among the lowest among its 34 member countries.

"Eliminating inefficient tax expenditures and increasing environmental, property and inheritance taxes would allow taxes on labor and businesses to be reduced further," said the OECD report which offered over a dozen specific recommendations.

The OECD said France's unemployment rate, which hit a 14-year record of 10.6 percent at then end of 2012, would continue to rise before stabilizing at 11.25 percent at the end of this year.