UPDATE 2-France recovery gains speed, needs deficit steps -OECD
* OECD raises 2011 GDP forecast at last minute to +2.0 pct
* France must spell out how to meet deficit targets -OECD
(Adds economist on revised forecast)
By Daniel Flynn and Leigh Thomas
PARIS, April 11 (Reuters) - France's economic growth will accelerate to 2 percent this year but unemployment will remain stubbornly high and the government still needs to take steps to meet medium-term deficit targets, the OECD said on Monday.
Presenting its annual assessment of France, the Organisation for Economic Co-operation and Development made a last-minute change to its 2011 growth forecast, raising it to 2.0 percent from the 1.6 percent predicted in a report released on Monday.
"Our latest predictions indicate real GDP growth of the order of 2.0 percent this year, perhaps even a little more," OECD Secretary General Angel Gurria told a news conference, flanked by French Finance Minister Christine Lagarde.
OECD officials said the revision, which placed the OECD in line with the French government's forecast, was made late last week after the report had already been printed.
Senior economist Peter Jarrett said the OECD was more optimistic about France than a few weeks ago because recent data had shown winter weather weighed on growth less than expected and that business investment was continuing to recover.
"All the factors are starting to fall into place," he said. "We may see some turnaround, not a boom by any means, but business investment should no longer be a drag on demand."
The OECD report said bond market tensions in Europe's periphery might weigh on investment and consumption prospects, and that French banks' exposure to countries at the centre of the crisis was a source of uncertainty and required vigilance.
Despite the recovery, unemployment would decline only slightly from 9.7 percent in 2010 to 9.3 percent by 2012. Underlying inflation would remain below 2 percent through 2012.
President Nicolas Sarkozy's government was on track to cut its deficit to 6 percent of GDP this year, from around 7.4 percent in 2010, the OECD said. Lagarde said on Friday France would be able to cut the 2011 deficit to 5.7 percent.
If the government meets its aim of reducing the deficit to 2.0 percent of GDP by 2014, that would stabilise France's debt at around 90 percent of GDP, the OECD said.
"It is important that the government announce specifically how it intends to achieve its medium-term objective, and that it follow through with implementation," the report said.
It called for the government to pare back expenditure, particularly via reform of the pensions and healthcare system, and extending its policy of replacing only one of every two civil servants who are retiring.
RISK OF HOUSING BUBBLE
Despite popularity mired near record lows ahead of 2012 elections, Sarkozy has said that reducing the budget deficit is a top priority and his government seeks to make France's cherished AAA sovereign rating beyond any doubt.
France's debt to GDP has quadrupled since the 1970s to more than 80 percent. Reducing that to 60 percent by 2030 would imply a consistent primary surplus, something France has not achieved in recent decades, the OECD said.
France has greater scope than most European countries to increase VAT collection, which would allow it lower labour taxes which were blocking employment.
After the Constitutional Council blocked Sarkozy's attempt to impose a carbon tax, the OECD urged France to pursue the measure at a European-wide level.
The OECD also urged the government to press ahead with constitutional reform to include rules on budgetary balance.
In the housing sector, the OECD noted that prolonged low interest rates had helped to turn around a drop in prices.
"The market would probably be vulnerable if rates were to go back up ... and there is a risk that a prolonged period of easy finance could result in a price bubble," it said.
The ECB raised interest rates by a quarter-point on Thursday but they remain well below levels prior to the financial crisis. (Additional reporting by Jean-Baptiste Vey; Editing by Jon Loades-Carter and Catherine Evans)
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