PARIS (Reuters) - French Prime Minister Manuel Valls told his ministers to get some rest during the August holiday but to stay alert to the prospect tough times ahead for the economy.
He flagged downside risks to growth and the spectre of deflation.
Unemployment is also a problem. France’s jobless rate at 10.1 percent in the first quarter of 2014, unchanged from the last quarter of 2013. But monthly figures show the total jobless numbers have continued to rise, hitting a record of 3.39 million in May.
Valls said his government had to keep working on reforms geared at helping Europe’s second-biggest economy catch up with faster-growing peers, notably by cutting payroll taxes for companies.
“I’ve asked the members of the government to rest, but certainly not to let their guard down,” he told reporters after meeting with his cabinet before the traditional August break.
“Our determination will remain strong over the weeks and months ahead because the autumn is going to be difficult from an economic perspective.”
Valls is presiding over an 50-billion-euro savings plan geared at bringing France’s public deficit under a European Union target of 3 percent of economic output by next year. The country has already been granted a two-year reprieve.
However both the Commission and the International Monetary Fund have said they consider France’s growth and deficit forecasts for this year too optimistic. Preliminary GDP data for the second-quarter is due to be released on Aug. 15.
“Weaker-than-expected growth in the euro zone poses problems. The risk of deflation is real,” Valls said.
Asked if the government would miss the deficit-reduction target again, said: “We need to wait for the figures. I can tell you that the government’s state of mind is to hide nothing, it is to confront the reality, which is that of the euro zone.”
Finance Minister Michel Sapin will provide an update on the economic situation in mid-August - a period which past French governments have used to unveil unflattering news.
Despite a powerful return to growth in the United States and a more moderate in the second quarter pickup in the euro zone, France continues to lag behind.
While data earlier on Friday showed that French consumer spending had risen more than expected in the quarter, rising unemployment, weak housing investment, falling mortgage lending and weak business confidence are dragging on the economy.
In July, French manufacturing activity shrank at the fastest rate in seven months as new orders and staffing levels fell, Data compiler Markit said in its monthly survey.
“The effort that’s asked of the nation is colossal, and only getting under way,” he said. “We must keep to that objective.”
Reporting By Nicholas Vinocur; Editing by Angus MacSwan