May 24, 2016 France: Staff Concluding Statement of the 2016 Article IV Mission
IMF COMMUNICATIONS DEPARTMENT
Media Relations
E-mail: media@imf.org
Phone: 202-623-7100
A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.
The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.
France’s economy is recovering, but major efforts are still needed to foster job creation and put public finances on a more sustainable footing. The key concerns are high unemployment and public debt. Clearly, policies have progressed in recent years, notably through labor tax cuts and competition-enhancing structural reforms. The “loi El Khomri” is another necessary step toward a more dynamic labor market. There are also ongoing efforts to contain government spending while easing the tax burden. However, important structural barriers to job creation remain and high government spending is still an obstacle to fiscal sustainability. To bring about a faster and durable reduction in unemployment and debt, IMF staff recommends:
• Reversing the trend of rising public debt by limiting growth of government spending to the rate of inflation, as targeted in the government’s Stability Program. This could eventually make room for alleviating France’s heavy tax burden.
• Making spending more efficient at all levels of government to make fiscal consolidation sustainable and consistent with growth and social objectives. This should include efforts to streamline the civil service and extend means-testing of social benefits.
• Complementing recent labor market reforms by strengthening job search incentives through the unemployment and welfare benefit systems, and by further efforts to adapt education and training to the labor market.
• Easing regulations for start-ups and the self-employed, as envisaged in the draft “loi Sapin II”, while further opening up access to regulated professions to support a job-rich recovery.
• Encouraging banks and insurers to further adapt their business models in a global environment of low growth and interest rates, while monitoring emerging risks.
Where is the economy headed?
1. The economy is recovering, but not at a pace that will bring about the needed reduction in France’s high level of unemployment and public debt. Over past decades, growth has been supported by rising government spending, robust wage dynamics and productivity growth, and a steady expansion of the labor force. But the crisis has taken a toll, with unemployment increasingly entrenched at a high level and the public debt ratio still rising and approaching triple digits. With past drivers of aggregate demand fading and a still fragile euro area recovery, medium-term growth prospects are modest. Real GDP is expected to grow by close to 1.5 percent in 2016, and we project growth to average 1.75 percent over the coming five years. This would still leave output well below the level that would have been achieved on pre-crisis trends. Moreover, it assumes that no major economic shocks hit the economy, a prospect that should not be taken for granted. New episodes of stress in global financial markets, emerging economies, or protracted stagnation in the euro area would present serious policy challenges.
IMF COMMUNICATIONS DEPARTMENT
Media Relations
E-mail: media@imf.org
Phone: 202-623-7100
page source http://www.imf.org/
