Opinion on the macroeconomic assumptions of the 2022-2027 Stability Programme

On Tuesday 26 July 2022, the High Council of Public Finance adopted an opinion concerning the macroeconomic assumptions of the Stability Program for 2022-2027 to be transmitted by the French Government to the European authorities.

Opinion's summary

The High Council was referred to the macroeconomic forecasts associated with the Stability Programme about three months after the usual date, even beyond the electoral period in France. Despite this unusual delay, the project submitted to the High Council presents numerous weaknesses.

The High Council reiterates the assessment it made in its opinion on the first amending budget bill, according to which the Government's growth forecast for 2022 (+2.5%) is not out of reach but somewhat high. The High Council considers that this is also the case for the 2023 forecast presented in the Stability Programme (+1.4%). The inflation forecast for these two years (5.0% and then 3.2%) appears to be, conversely, underestimated. The scenario of a return of inflation to below 2% as soon as 2024 also appears ambitious.

The forecast for wage bill growth in the non-agricultural market sectors for 2022 (+8.5%) is plausible, but the forecast for 2023 (+3.7%) seems low.

The High Council considers that the assumptions for the output gap in 2022 (-1.4 points of GDP) and for potential growth (1.35% per year from 2023 to 2027) used by the Government are optimistic. These assumptions include, in particular, a forecasted increase in labor supply linked to the announcement of reforms (pension reform, unemployment insurance reform, reform of the minimum income scheme, public childcare services), the details and effects of which are not specified. The Government assumes that these effects will be significant and almost immediate, which is far from certain.

A look at the macroeconomic scenario confirms this diagnosis. The rebound in growth starting in 2023 relies on very favorable assumptions regarding the positive contribution of foreign trade and the maintenance, despite the current tightening of financing conditions, of the household and business investment rates at levels close to the very high levels reached in 2021.

Despite these very favorable growth assumptions, the public finance trajectory presented by the Government is not very ambitious in terms of reducing the deficit in light of France's European commitments, and is much slower in doing so than projected by our European partners, with the public deficit barely returning below 3 points of GDP in 2027 (2.9 points of GDP). Public debt would be nearly stable over the entire period at a high level (112.5 points of GDP in 2027). France's public finance situation would thus continue to deteriorate with respect to other comparable countries in the euro zone.

In a highly uncertain geopolitical, economic, and economic policy context, this path leaves no safety room: with lower growth than in the Government's optimistic scenario, the deficit would still be above 3 points of GDP in 2027 and the debt ratio would keep rising over the entire period.

This trajectory is also based on an assumption of an increase in the rate of taxes and social contributions through the elimination of fiscal loopholes, which experience has shown to be difficult to implement, and on efforts to control spending on a greater scale than those implemented in the past, the timing and concrete details of which remain very vague.


All in all, the High Council considers it imperative that the next public finance programming law correct these estimates by setting the output gap and potential growth assumptions on a prudent basis, taking into account the uncertainty of the period, and that it give credibility to the presented public finance trajectory through a precise description of the reforms and expenditure measures it implies.