Opinion on the macroeconomic assumptions of the 2017-2020 Stability Program

The High Council of public finance delivers on 10 April 2017 an opinion on the macroeconomic assumptions associated with the Stability Program for the years 2017 to 2020.

Opinion's summary

The growth forecasts submitted by the Government for 2017 (1.5 %) are slightly higher than most of the available forecasts. Given the favorable consumer and business surveys and the improvement of the global growth, the High Council considers that this forecast is plausible, even though some of the data about French economic activity are disappointing at the beginning of the year.

The High Council considers that the private wage bill forecast is also plausible. He considers that Government’s inflation forecast for 2017 (1.2 %), which is at the low end of the March 2017 consensus forecasts, is reasonable.

The High Council notes the downward revision of the growth and inflation rates in the Government’s forecasts for 2018, 2019 and 2020. This revision is in agreement with its observations expressed in its opinion on the April 2016 Stability Program. He considers that this scenario, more prudent, can be a reasonable basis for the budgetary consolidation path.

The High Council insists again on the unlikelihood of the Government’s estimate of the output gap and potential growth. The evaluation of a large output gap leads to artificially reduce the structural deficit and consequently to downplay the effort to provide in order to rebalance public finances.

The High Council considers that the next public finance programming law needs to correct those estimations and set the output gap and potential growth assumptions on realistic basis. Estimates in the public finance programming law need to guarantee the internal consistency of the macroeconomic scenario and to take into account estimates made by external institutions and organizations. It must be possible to adapt those assumptions in the process of a public finance programming law if necessary.

Finally, given the instability of the output gap measure and, as a consequence, of the estimate of the structural budget balance, the High Council suggests also taking into account in the public finances’ assessment some other indicators which are better to reflect the fiscal stance, such as the structural effort.