Economic turbulence and rate hikes could jeopardise France's deficit efforts, fiscal watchdog warns

PARIS, April 22 (Reuters) - Uncertain economic conditions and possible changes in interest rates could throw France's effort to trim its deficit to 3% of output by 2029 into doubt, France's fiscal watchdog said on Wednesday.

The conflict in the Middle East has scrambled the outlook for France and the broader euro zone, as oil and gas costs have surged. Last week France's finance ministry cut its 2026 growth forecast slightly to reflect the fallout from the conflict, predicting the euro zone's second-largest economy would grow 0.9% instead of the 1% it had previously expected, and raised its inflation estimate to an average 1.9% from 1.3%. And in March, overall inflation in the 21 countries sharing the euro currency jumped to 2.5% from 1.9% a month earlier, though the hike was smaller than expected and core inflation declined.

The European Central Bank is weighing a rise in interest rates to prevent the surge in energy costs from becoming entrenched in the prices of other goods and services.

In France, the High Council for the Public Finances, which is mandated by law to examine the government's budget plans, said in a report that plans to cut public spending may not be enough to reduce the deficit due to other uncertainties.

"Even if the net primary spending trajectory is maintained, the actual reduction of the deficit to below 3% of GDP by 2029 is subject to uncertainties, particularly regarding economic conditions, interest rate trends, and the response of revenues to growth," it said. France, which has one of the largest budget deficits in the euro zone, has said it will offset the economic fallout from the Iran crisis by freezing some spending. (Reporting by Makini Brice; Editing by Toby Chopra)