France to hike minimum wage by 2 per cent

France's new government announced a cosmetic 2-per cent hike to the minimum wage yesterday as it sought to soften the blow from tax hikes and spending freezes to the struggling economy.

The move comes as newly-elected French president François Hollande presses ahead to refocus away from austerity towards measures aimed at boosting growth and with planned tax increases to cut the public deficit within a target of 4.5 per cent of gross domestic product by the end of 2012.

However, he has a hard struggle on his hands, as national statistics agency Insee forecast that economic growth in 2012 would remain feeble at 0.4 per cent and that the unemployment rate would reach 10.3 per cent from 10 per cent currently.

Hollande's five-week-old Socialist government would cut €1 billion of planned spending this year, in addition to a three-year spending freeze that would kin in in 2013, according to French budget minister Jérôme Cahuzac.

In a bid to dispel notions that belt-tightening was its sole concern, the government agreed to increase the minimum wage from 1 July by 2 per cent, although the increase fell far short of union demands.

According to French prime minister Jean-Marc Ayrault who spoke to cabinet ministers on Monday, overall spending at ministries and regional government departments would be frozen from 2013 for three years, excluding debt costs and pensions.