France warns of 8% GDP drop this year after lockdown extension

PARIS: France's economy is expected to shrink by a worse-than-expected eight percent this year after President Emmanuel Macron extended a coronavirus lockdown until May 11, though officials cautioned Tuesday than any lifting of the stay-at-home orders would be gradual at best.

Finance Minister Bruno Le Maire had previously targeted a six percent GDP drop for the year, but that was based on a lockdown that lasted just one month, instead of the two-month period announced by Macron in a televised address Monday night.

Le Maire told BFM television that given the uncertain outlook for economies across the globe, not least in the United States and Asia, "these forecasts need to be considered with caution.

"The massive relief effort for bars, restaurants, hotel, shops and other businesses closed during the lockdown will push France's budget deficit up to nine percent of GDP this year, Budget Minister Gerald Darmanin said separately in an interview with France Info radio.

"Each day, each week of confinement is worsening our public finances," he said, adding that France's debt pile would soar to 115 percent of GDP, up from just under 100 percent last year.

Both forecasts are well above the limits set by the EU's Stability and Growth Pact, which calls for deficits to be capped at three percent of GDP, and a debt-to-GDP ratio of no more than 60 percent.

But EU officials have already signalled the rules will be suspended as governments scramble to contain the economic fallout and prevent mass bankruptcies and layoffs.

Le Maire said government aid for small companies at risk of going under after losing at least 50 percent of their revenues, would be raised to as much as 5,000 euros ($5,470) from 1,500 euros previously.

The total amount of this solidarity fund would now reach seven billion euros, he said, and some 900,000 businesses have already applied for the aid.