FRANCE FACES PRESSUE TO CHANGE POLICIES France's right wing government is facing growing pressure to modify its economic policies after revising down its 1987 growth targets and revising up its inflation forecasts for this year. Moving reluctantly into line with most private sector forecasts the government yesterday raised its 1987 inflation estimate a half percentage point to 2.5 per cent and cut its economic growth estimate to between two and 2.8 per cent from a 2.8 per cent target written into the annual budget last september. Finance Minister Edouard Balladur said the revised figures would not push the government off its chosen mix of price deregulation, budget-cutting rigour and pay restraint. But Trade Union leaders served immediate notice they would push to protect the purchasing power of their members, raising the spectre of a vicious spiral of wage and price rises. And bank economists contacted by Reuters said they believed Prime Minister Jacques Chirac could be forced by slow growth and rising unemployment to reflate the economy later this year, perhaps in the autumn, to boost his prospects in Presidential elections due by April 1988. "The outlook is more worrying than it was a few weeks ago," said Societe Generale economist Alain Marais. "We have the impression it may be difficult to get even two per cent growth this year." "The big question is whether the government's policy of wage moderation will be maintained," he added. The government has set public sector wage rises at aboout 1.7 per cent this year, with a three per cent ceiling for rises justified by increased productivity. But the head of the socialist CFDT union federation, Edmond Maire, meeting with Chirac today, renewed union demands already rejected by the government for indexation clauses to be built into future pay contracts to safeguard workers against higher prices. Calling the government's policies "unbalanced and unjust," he also demanded investment incentives to boost employment. He announced after his meeting that Chirac had told him the government would spend two billion francs on a series of measures to boost employment and training Andre Bergeron, a widely respected leader of the moderate Force Ouvriere labour group, put similar demands to Chirac earlier in the week while the Communist-led CGT, the largest of France's unions, declared the defence of its members earnings its top priority. But with unemployment nearing 11 per cent last month, and still rising, government supporters and some economic analysts said they were confident Chirac could resist union pay demands. "Salary indexation was ended by the previous Socialist government and I dont think this administration is going to reverse that," commented Michel Develle, economist at recently-privatised Banque Paribas. Damaging transport and electricity strikes over Christmas and the New Year, partly blamed by the government for higher inflation, had undermined the unions power and popularity, he said. Develle said Paribas expected inflation to rise even more than the governments revised forecast, perhaps to 2.6 or 2.7 per cent this year against last years 2.1 per cent. "But that would still be an exceptional achievement considering that for the first time since the Second World War all french prices have been freed," he commented. Finance Ministry officials said that the governments abolition of price and rent controls last year was responsible for nearly a quarter of a 0.9 per cent surge in January living costs. But they claimed it was a once-off phenomenon that should have no knock-on impact on the rest of the year. Both Marais and Develle said they agreed with that, so long as the government kept wages under control. Prices could rise 1.5 per cent in the first three months of 1987 and two per cent in the first half year, fractionally more than forecast this week by the National Statistics Institute, INSEE, Marais said. But the second half year should be better, he added. Ironically, one side effect of higher inflation could be to help the government achieve its aim of cutting the state budget deficit, several analysts said. So long as public sector wages are held down, higher Value Added Tax receipts resulting from rising prices should offset a loss in revenues that otherwise would result from slower than expected growth, they said.