Growth, inflation: Bercy darkens the picture for 2023

Posted September 13, 2022, at 8 p.mUpdated on September 14, 2022 at 8:39

Not yet out of breath, but already less stout. French growth has been downgraded to just 1% next year, according to Bercy’s new 2023 Finance Law (PLF) forecasts revealed on Tuesday, illustrating a difficult economic situation marked by higher-than-expected inflation that will significantly complicate the government’s budget equation.

The parliamentary groups in the National Assembly and the Senate, received within the framework of the “Dialogs de Bercy”, had the scoop on this new macroeconomic framework. Suffice it to say that the dialogue opening up for the PLF promises to be severely limited in light of the picture painted by the tenants in Bercy. “We are in an economic situation characterized by very strong tensions”, insists Bruno Le Maire, the economy minister, referring to the war in Ukraine, the difficulties of the main trading partners (Germany, the US and China) and rising energy prices.

Inflationary rise that persists

Activity resists in 2022 with a growth forecast revised upwards from 2.5% to 2.7%, allowing the economy minister to ensure that “France will not go into recession” and “2022 will be a good new year”. On the other hand, the government must lower its ambitions for next year compared to what it announced this summer, from 1.4% to 1%. In particular, “peak inflation”, described by Bruno Le Maire for a few weeks, promises to last longer than expected. No further ebb is expected until “during 2023”, and while price increases promise to still be “high” in December, January and February.

Bruno Le Maire acknowledges “that by withdrawing fuel discount measures at the beginning of the year and by accepting a contained increase in gas and electricity prices”, certain government decisions should contribute to this peak. “But it does not call into question the decline in inflation during 2023,” he adds. Bercy now expects a price increase of 4.2% in 2023 (3.2% announced in July) after 5.3% in 2022 (5% previously forecast).

Despite this bleak outlook, the executive maintains its goal of stabilizing the year-over-year deficit at 5% of GDP this year and next. This becomes all the more difficult if the gas and electricity price shield promises to be less protective than this year (with a price increase of between 10% and 20% in 2023 after virtual stability in 2022), it will remain extremely expensive for public finances.

Energy check in preparation

“The amounts are in the tens of billions of euros”, we say in Bercy, while reminding that part will be financed by the revenues drawn from the surplus of the producers of renewable energy – undoubtedly around fifteen billion next year. The government also provides additional energy checks for the most modest households. And the fact of indexing all income tax brackets to the development of inflation (5.3%) should ultimately correspond to a reduction in tax for those whose wages have increased less than the price curve.

So how do you limit breaches of public accounts in this context? Bercy ensures that the target of reducing public consumption by -0.3% in volume (excluding inflation) is met. It must be said that certain measures such as the food check or the fuel allowance have been discounted.

Tax revenue

Another lever, some good tax surprises are still expected despite the depressed economy. “Corporate tax revenues will be stronger than we had imagined”, notes Gabriel Attal, the Minister Delegate for Public Accounts, who expects another 3 billion (for a total of 55.2 billion) next year.

Finally, Bruno Le Maire ensures “to show responsibility”. “We took into account the comments from the Court of Auditors and the main rapporteur, Jean-RenĂ© Cazeneuve, who urged us to slow down the tax cuts”, continues the minister. This explains why the new reduction phase of 8 billion euros in production taxes is spread over two years. And it also leads to postponing Emmanuel Macron’s promise to lower inheritance tax for a better future. “We will open the debate with the oppositions who want to do it about the inheritance system, but without registering credits for 2023”, warned Bruno Le Maire.

With this cocktail of measures, Bercy hopes not only to meet his deficit target, but also to slightly improve the debt situation. This should fall slightly to 111.2% of GDP in 2023 against 111.5% in 2022.

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