PARIS, September 8 – The head of the International Monetary Fund Monday hinted that the global lender could downgrade its forecast for world economic growth this year when it releases new figures next month.
“We are in the process of updating our forecasts. World growth should be just above three percent this year, between 3.0 and 3.5 percent,” Christine Lagarde told French business daily Les Echos.
The IMF had previously forecast global growth at 3.4 percent for this year and will release new projections on October 7.
Lagarde said world growth was “too weak, fragile and uneven” and there were “several geopolitical risks” stemming from the crises in Ukraine and the Middle East.
The IMF chief urged France to “continue the path of budgetary consolidation” and appeared to warn French authorities not to use the current low level of inflation as an excuse to put off its efforts at deficit reduction.
“Even if inflation is weaker than usual, it cannot be used as a screen to put off the necessary efforts on spending,” Lagarde emphasised.
Last week, in an exclusive interview with AFP, French Finance Minister Michel Sapin hinted France might not meet its budgetary targets due to a low level of inflation.
“We can’t have the same targets with an inflation that is becoming very low,” Sapin told AFP, in response to a question on whether the target of cutting 21 billion euros ($28 billion) in public spending next year could be jeopardised.
France has promised to get its public deficit down to the European Union ceiling of three percent of gross domestic product next year but this looks increasingly difficult given stagnant growth in the eurozone’s second largest economy.
France’s government has predicted a deficit of “around four percent” of gross domestic product this year, an upwards revision from the 3.8 percent forecast previously.
President Francois Hollande’s plan to get the French economy moving again, known as the Responsibility Pact, sees some 50 billion euros in spending cuts up until 2017.
On the other side of the ledger, Hollande plans to offer businesses 40 billion euros in tax cuts in return for creating 500,000 jobs before 2017.
Lagarde said that the impact of this plan on the economy is “contained” given that the cuts in public spending are largely compensated by tax breaks.