/www.bloomberg.com/ By Francois de Beaupuy
Paris, (Bloomberg) -- The French government trimmed its official forecast for economic growth in 2003 to 1.3 percent from 2.5 percent, daily newspaper Les Echos said, citing an interview with French Prime Minister Jean-Pierre Raffarin.
The government considered forecasting 1.5 percent, yet chose to err on the ``cautious'' side because the impact of a possible war in Iraq and the fluctuations of the euro are hard to predict, Raffarin told the newspaper in an interview to be published in tomorrow's edition of Les Echos.
The French prime minister ruled out raising the so-called CSG tax to plug the budget deficit, and said the government will stick to its plan of cutting household income taxes by 1 percent this year, according to Les Echos. From next year, the government will proceed with tax cuts, assuming growth is about 2.5 percent. Otherwise, it will prioritize which taxes to cut, he said.
France, Europe's third-largest economy, is expected to violate the European Union's rules on limiting budget deficits for a second year in 2003. The government has said raising taxes now would stifle an economy already suffering from flagging consumer demand and business investment as the threat of an Iraqi war looms.
Raffarin reiterated that EU rules limiting budget deficits to 3 percent of gross domestic product must be reformed, Les Echos said. Research spending should be taken out of the deficit calculation, the prime minister said.
Difficult Year
This year will be a difficult year for employment, Raffarin told Les Echos. The government will try to stem the rise in unemployment, he said. At the same time, Raffarin backed Finance Minister Francis Mer's plan to replace only half of the finance's ministry staff who will retire in the coming years.
The European Central Bank, which sets interest rates for the 12 nations that share the euro, still has room to reduce borrowing costs, Les Echos quoted Raffarin as saying. A lasting ``weak dollar strategy'' would be a cause for concern, Raffarin also said.
France will resume selling assets when the economic situation improves, the prime minister said, according to Les Echos. Air France SA is top of the list, he said.
Raffarin told Les Echos that the government hasn't made a decision on a request from state-owned power company Electricite de France to raise electricity prices by more than 4 percent on April 1.