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France Sees Smaller Debt Mountain on Stronger Economic Rebound

William Horobin

(Bloomberg) -- France expects its fiscal situation to be slightly less stretched this year, citing a pickup in spending and production and an upward revision to its economic outlook.

The government sees the debt ratio rising to 117.5% of output, according to new forecasts published Wednesday. It previously warned that it would top 120% as tax revenues collapsed and the state spent hundreds of billions of euros supporting businesses and workers.

The expected economic contraction this year was revised to 10% from 11%, though that’s still more pessimistic than the Bank of France, which predicted an 8.7% GDP decline earlier this week.

The economy may expand 8% in 2021, helped by a 1.5 percentage-point boost from the 100 billion-euro ($118 billion) stimulus plan, according to officials at the finance ministry. By the end of 2021, GDP will be 2.7% below 2019 levels, instead of 4% below as previously expected.

But the extra spending to reboot the economy will weigh on the budget deficit next year, and keep it close to 7%. That compares with an earlier forecast of 5.5%.

The government also expects that measures to delay or waive some business taxes will cost more than estimated. Having earlier budgeted 3.9 billion euros in 2020, it’s now raised that to 11 billion euros.

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