Amadeusz Juskowiak

France faces pressue to change policies

Frances right wing government is facing growing pressure to modify its economic policies after revising down its 1987 growth targets and revising up its inflation forecasts for this year

Moving reluctantly into line with most private sector forecasts the government yesterday raised its 1987 inflation estimate a half percentage point to 25 per cent and cut its economic growth estimate to between two and 28 per cent from a 28 per cent target written into the annual budget last september

Finance Minister Edouard Balladur said the revised figures would not push the government off its chosen mix of price deregulation budgetcutting rigour and pay restraint

But Trade Union leaders served immediate notice they would push to protect the purchasing power of their members raising the spectre of a vicious spiral of wage and price rises

And bank economists contacted by Reuters said they believed Prime Minister Jacques Chirac could be forced by slow growth and rising unemployment to reflate the economy later this year perhaps in the autumn to boost his prospects in Presidential elections due by April 1988

The outlook is more worrying than it was a few weeks ago said Societe Generale economist Alain Marais We have the impression it may be difficult to get even two per cent growth this year

The big question is whether the governments policy of wage moderation will be maintained he added

The government has set public sector wage rises at aboout 17 per cent this year with a three per cent ceiling for rises justified by increased productivity

But the head of the socialist CFDT union federation Edmond Maire meeting with Chirac today renewed union demands already rejected by the government for indexation clauses to be built into future pay contracts to safeguard workers against higher prices

Calling the governments policies unbalanced and unjust he also demanded investment incentives to boost employment He announced after his meeting that Chirac had told him the government would spend two billion francs on a series of measures to boost employment and training

Andre Bergeron a widely respected leader of the moderate Force Ouvriere labour group put similar demands to Chirac earlier in the week while the Communistled CGT the largest of Frances unions declared the defence of its members earnings its top priority

But with unemployment nearing 11 per cent last month and still rising government supporters and some economic analysts said they were confident Chirac could resist union pay demands

Salary indexation was ended by the previous Socialist government and I dont think this administration is going to reverse that commented Michel Develle economist at recentlyprivatised Banque Paribas

Damaging transport and electricity strikes over Christmas and the New Year partly blamed by the government for higher inflation had undermined the unions power and popularity he said

Develle said Paribas expected inflation to rise even more than the governments revised forecast perhaps to 26 or 27 per cent this year against last years 21 per cent

But that would still be an exceptional achievement considering that for the first time since the Second World War all french prices have been freed he commented

Finance Ministry officials said that the governments abolition of price and rent controls last year was responsible for nearly a quarter of a 09 per cent surge in January living costs

But they claimed it was a onceoff phenomenon that should have no knockon impact on the rest of the year

Both Marais and Develle said they agreed with that so long as the government kept wages under control

Prices could rise 15 per cent in the first three months of 1987 and two per cent in the first half year fractionally more than forecast this week by the National Statistics Institute INSEE Marais said But the second half year should be better he added

Ironically one side effect of higher inflation could be to help the government achieve its aim of cutting the state budget deficit several analysts said

So long as public sector wages are held down higher Value Added Tax receipts resulting from rising prices should offset a loss in revenues that otherwise would result from slower than expected growth they said