PARIS (Reuters) – France will see the national debt burden fall faster than previously expected even though the cost of interest payments is set to soar, the finance ministry said on Thursday.
The ministry also said that it expected the fiscal shortfall to widen slightly this year to 4.9% of economic output from 4.7% last year, but still expected to cut it to less than an EU limit of 3% by 2027.
Meanwhile, the national debt burden, which reached a record just shy of 3 trillion euros at the end of last year, was expected to fall from 111.6% of economic output last year to 109.6% this year.
It was then seen gradually easing afterwards to stand at 108.3% by 2027 whereas the ministry had previously forecast it would hover around 111% of economic output between now and 2027.
Economists say that it is natural for currently high inflation to reduce debt as a share of nominal gross domestic product because it boosts the prices used to calculate GDP, automatically lowering the ratio.
The ministry updated its long-term forecasts as part of its annual financial stability programme that euro zone countries send to their EU partners to show that they are not letting dangerous budget problems build up.
It maintained its 2023 economic growth forecast of 1%, even though other institutions from the International Monetary Fund to the central bank have all pencilled in lower estimates.
The ministry also stuck to a forecast that inflation would fall from 4.9% this year to the European Central Bank’s 2% target by 2025.
With the interest rate on France’s benchmark 10-year bond seen averaging 3.2% this year and 3.4% afterwards, the ministry forecast that the cost servicing the debt burden would surge from 41 billion euros this year to more than 71 billion in 2027.
(Reporting by Leigh Thomas; Editing by Ingrid Melander)
