The investment bank Natixis tries to predict the future of the French economy through its calculations. On Wednesday August 16, this subsidiary of the Banque Populaire-Caisse d’Epargne (BPCE) group published a forecast note to estimate the French public deficit by 2027 if the situation remains the same as today.
Estimated at 124.5 billion euros in 2022 by INSEE, i.e. 4.7% of GDPthe public deficit corresponds to the State’s loss of money: its annual revenue is now lower than its expenditure, in particular to run the public administration.
Problem: the European treaties set an annual public deficit ceiling of 3% of GDP. The government has notably announced targets for reducing administrative expenditure to fall below this bar by the end of the five-year term, in 2027, but Natixis nevertheless raises the question: to what extent the State would lose money within five years “without an increased effort to reduce the deficit”?
An estimate based on three indicators
To do this, the investment bank is based on three elements. First, the estimate of the “potential growth” of GDP. Clearly, how much government revenue will increase (or not) by 2027 if we do not change fiscal policy.
Natixis thus relies on the figures for 2022 and calculates this first indicator by calculating “the sum of the productivity gains […]labor force growth […]growth in the employment rate” and the unemployment rate. Result: the establishment expects a “foreseeable weakness” of this growth at 0.3% per year over the period 2023-2027. In the second quarter of 2023, this amounted to 0.5% in France, according to INSEE.
Second indicator: the evolution of “interest rates on the public debt”, that is to say the costs paid by the State after having borrowed money… In particular to compensate for its deficit each year. The more France is in deficit, the more it borrows, and the more it has to pay borrowing costs, which increases its deficit.
Based on the evolution of the public debt, the amount of interest paid and the 10-year interest rates imposed on the State, Natixis estimates that France will pay interest equivalent to “3.5% of its GDP in 2027”.
A pessimistic estimate that echoes other
Third and last indicator: the evolution of the so-called “primary” deficit, that is to say the annual losses of the State linked solely to the operating costs of the administration. Without taking into account the interest paid on the debt, therefore. Based on the situation in 2022 and on its previous estimate for GDP growth for 2027, the investment bank forecasts that the primary public deficit would increase by 0.3% of GDP per year in France.
These three elements thus allow Natixis to give its forecast on the amount of the losses of the State for the year 2027 “without modification of the behavior of the governments”: the total public deficit would represent “4.7 points of GDP” in France.
While this calculation remains that of a private bank, it echoes the Banque de France forecasts, which estimated in June that the public deficit “would remain above 4% of GDP by 2025”. A few days later, it was the turn of the Court of Auditors of judge the objective of a 3% deficit in 2027 “achievable, at the cost of a substantial effort”, particularly in the face of future ecological investments. And this, even assuming that economic policy changes.