Opinion on the macroeconomic forecasts of the 2023-2027 stability programme

The Government referred the macroeconomic framework of the draft Stability Programme to the High Council of Public Finance on April 20, 2023.

Opinion's summary

The High Council of Public Finance considers that the Government's growth forecasts for 2023 and 2024 in the Stability Programme, unchanged compared to those in the draft public finance programming bill submitted in September 2022, are not out of reach, but appear optimistic.

Although year-on-year inflation is expected to start falling in the course of 2023, the decline expected by the Government appears to be rapid, so that the inflation forecasts, revised upwards for 2023 (to 4.9%) but downwards for 2024 (to 2.6%), seem to be somewhat underestimated.

The High Council considers that the forecast for wage bill growth for 2023 (6.1%), revised upwards by one point, is plausible, but that the forecast for 2024 (3.4%) is somewhat low.

As it indicated in its opinion on the draft public finance programming bill for the years 2023 to 2027, the High Council considers that the growth forecast (1.7% on average per year over the period 2025-2027) is high. It is based in particular on an increase in household consumption that is significantly higher than that recorded before the health crisis, explained in part by the decline in their savings rate, which is possible but not a given. These forecasts for growth and private consumption are based on favourable assumptions for potential growth (1.35% per year over 2023-2027) and for the output gap in 2022 (-1.1 percentage point of potential GDP). These assumptions involve significant productivity gains, higher than recent trends would suggest, and an increase in total employment, notably related to pension and unemployment insurance reforms, which appears to be overestimated.

This scenario is thus much more favorable than that of the European Commission, whereas this one is expected to guide the public spending targets that should be set from 2024 onwards when the reform of European governance of public finances currently under discussion will be adopted.

While the High Council of Public Finance had noted the "unambitious" nature of the deficit and debt targets set out in the draft public finance programming bill for the years 2023 to 2027, it notes that the Government has revised these targets for 2027 to better take into account the necessity to reduce public debt, which the High Council has repeatedly emphasized.

The High Council notes, however, that this public finance path is based on an unchanged macroeconomic scenario, including a favorable growth assumption, without which the public deficit would remain higher by 2027 and the public debt ratio would start to rise again from 2024.

Moreover, this trajectory calls for the implementation, over several years, of efforts to curb public spending on a greater scale than those implemented in the past, although their timing and concrete details are still vague. It also assumes that the announced measures to reduce compulsory levies will not be fully implemented or that they will be offset by increases in other compulsory levies or reductions in tax expenditures.

The High Council notes that while the Stability Programme makes it possible to set public finance objectives, it cannot replace a programming that is currently lacking. It therefore reiterates its call for the rapid adoption of a public finance programming law. This law should outline a credible path for reducing public debt, based on realistic macroeconomic assumptions and a clear and documented strategy for curbing public spending and for compulsory levies.