Opinion on the macroeconomic assumptions of the Stability programme for 2020 and on the second amending budget bill for 2020

The High Council adopted the following opinion after deliberation at its meeting of 14 April 2020. As the macroeconomic forecasts associated with the stability programme for 2020 and those associated with the second amending budget bill for 2020 are the same, this opinion refers to these two texts. 

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Opinion's summary

The Government jointly referred the stability programme and a second draft amending finance law (2nd PLFR) to the High Council on 9 April 2020, then made two amending referrals on 10 and 14 April in order to take account of new information that had become available in the meantime.

The exceptionally high uncertainty resulting from the health crisis caused by the Covid-19 epidemic affects all macroeconomic forecasts and requires frequent revisions.

The High Council notes that the Government's assumption of the GDP impact of the movement and activity restraint measures (-3 GDP points per month) is in line with recent estimates for the first month of containment and that the scenario presented is constructed over an eight-week period of containment.

The High Council observes that this economic scenario is based on the strong assumption of a relatively rapid return to normal activity beyond May 11. In particular, it assumes that the economic policy measures taken in response to the crisis will preserve the economy's productive capacity and that both domestic and foreign demand will not suffer lasting consequences of the crisis.

Overall, the High Council notes that, if this strong assumption were not to be met, the fall in activity could be even greater than the Government's forecast of -8 % in 2020

The High Council emphasises that the high uncertainties in the macroeconomic forecasts affect the public finance scenario presented in the 2nd PLFR, in particular with respect to tax and social security revenues. There are also significant risks to the level of expenditure, resulting in particular from the new schemes put in place or those that may be decided shortly to deal with the crisis. As a result, the public deficit could be worse than forecast by the 2nd PLFR (-9 points of GDP).

The High Council notes that the structural deficit for 2020, as estimated by the Government, would be the same as in 2019. However, the significance of this assessment in the current context is very limited. The assessment of the structural deficit could subsequently be reconsidered if some of the expenditure related to the health crisis were to be maintained and if the assessment of potential GDP were to be revised downwards.

The High Council notes that after an almost uninterrupted increase between 2008 and 2019, the debt ratio, which stood at 98 GDP points in 2019, would rise sharply in 2020 to 115 GDP points.