IMF Executive Board Concludes 2011 Article IV Consultation with France

Public Information Notice (PIN) No. 11/99
July 27, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2011 Article IV Consultation with France is also available.

On July 25, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with France.1


The gradual recovery of the French economy is progressing, with growth in 2011 expected to be around 2 percent. Although the unemployment rate remains high at 9½ percent, employment has been increasing and confidence benefited from stronger activity in core Europe. Growth in early 2011 was led by robust private consumption and stock-building, and supported by a recovery in investment, although net exports have remained lackluster. An unsettled external environment continues to pose risks, especially related to possible spillovers from lingering euro area sovereign debt problems, and uncertainty about energy prices.

A sizeable fiscal consolidation has been set in motion. The fiscal deficit in 2010 was 7.1 percent, better than foreseen, and a sizeable upfront adjustment is being made in 2011 to restore sustainable public finances. The overall budget deficit is to be reduced to 3 percent of Gross Domestic Product (GDP) by 2013 and 2 percent of GDP by 2014. The planned adjustment is to be implemented through binding multi-year restrictions on more than three-quarters of central government expenditures and minimum yearly targets for the reduction in tax expenditures. The ability to achieve the targeted adjustment also hinges on the pace of the economic recovery, and more efforts might be needed to achieve the 2012–13 targets if actual growth outcomes fall short of the authorities’ projections.

The French banking sector has overcome most of the crisis legacies and has returned to strong profitability. Bank capital remains below some European peers, but is increasing, and the major French banks should be able to meet the Basel III capital requirements by 2013/14. At the same time, the large French banks remain highly reliant on wholesale funding and exposed to peripheral Euro countries. Institutional reforms, including the unification of banking and insurance supervision and inclusion of consumer protection mandates, as well the creation of a national systemic risk board have further strengthened the supervisory arrangements in France, which will also benefit from the ongoing European reforms aimed at strengthening cross-border elements of supervision. House prices in France increased rapidly over the past year, but financial stability risks linked to rapid house price increases seem at this stage contained.

Going forward, France is challenged to lift potential growth and reduce unemployment, in particular the lack of jobs for young, unskilled, and senior workers. The reduction in unemployment is, in part, due to labor market reforms. A number of government programs provide incentives for education and innovation. Efforts are also under way to improve competition in product and services markets where progress remains limited.

Executive Board Assessment

Executive Directors noted that supportive policy measures and key reforms in the pension system and labor market have underpinned a gradual, more broad-based recovery. Consumption has been robust, investment has picked up, and employment is rising. Directors noted that, while the economic outlook is favorable, risks are tilted to the downside, amid the sovereign debt crisis in the euro area, and uncertainty about energy and commodity prices. The main policy priorities are to restore fiscal sustainability, safeguard financial sector stability, and reduce unemployment. At the same time, it is important to build on the momentum of structural reforms to promote competitiveness and inclusive growth.

Directors stressed that credible fiscal consolidation is necessary for debt sustainability. They agreed that the consolidation targets set out in France’s Stability Program and the 2011–14 multi-year budget framework strike the right balance between growth and sustainability considerations, with front-loaded and expenditures-based measures. Directors recommended preparing specific contingency measures in case growth outcomes fall short of expectations, and using windfall revenue to accelerate deficit and debt reduction. They looked forward to the enactment of a fiscal rule, signaling France’s commitment to fiscal sustainability. Using conservative growth forecasts and capping the autonomous spending of local governments and social security would further enhance the credibility of the adjustment strategy. Directors encouraged deeper reforms of the pension and health care systems, building on recent progress.

Directors welcomed the overall resilience of the French financial system, as confirmed by stress tests undertaken by the European Banking Authority. They commended the authorities for further strengthening supervisory arrangements, particularly the unification of banking and insurance supervision, the introduction of a consumer protection mandate, and the creation of a national systemic risk board. While acknowledging that risks related to rapid house price increases seem contained at this stage, Directors called for continued vigilance, and in this regard welcomed the authorities’ readiness to take measures as necessary, including macro-prudential tools. Directors agreed that banks would benefit from swiftly raising their capital levels, with the aim of meeting Basel III requirements by 2013/14, ahead of the official implementation period. Given the global systemic importance of France’s major banks, there is a need for tailored and internationally consistent measures, including capital surcharges. Directors welcomed France’s active involvement in the ongoing international debate on financial regulatory reform.

Directors highlighted the importance of pressing ahead with the structural reform agenda to boost competitiveness, job creation, and productivity growth. They supported an ambitious multi-pronged strategy, carefully articulated in light of the ongoing fiscal consolidation. Key elements should include keeping real wage increases in line with productivity improvements, increasing labor force participation, and fostering competition in the service sector. Sustained efforts are also needed to reduce high structural unemployment, focusing on targeted job search support and training opportunities, and modernization of the tax and benefit systems.

France: Selected Economic and Social Indicators, 2008–16
  2008 2009 2010 2011 2012 2013 2014 2015 2016

Real economy (change in percent)


Real GDP

-0.2 -2.6 1.4 2.1 1.9 2.0 2.1 2.1 2.1

Domestic demand

0.1 -2.4 1.3 2.2 1.7 2.0 2.1 2.1 2.1

CPI (year average)

3.2 0.1 1.7 2.2 1.7 1.8 1.9 1.9 1.9

Unemployment rate (in percent)

7.8 9.5 9.7 9.3 8.8 8.6 8.2 7.9 7.8

Gross national savings (percent of GDP)

20.1 17.5 18.6 18.6 19.2 19.5 19.7 20.0 20.2

Gross domestic investment (percent of GDP)

21.9 19.0 20.4 20.8 21.2 21.4 21.5 21.8 22.0

Public finance (percent of GDP)


Central government balance

-3.3 -6.2 -6.3 -4.4 -3.8 -3.0 -2.5 -1.8 -1.2

General government balance

-3.3 -7.5 -7.1 -5.7 -4.8 -3.8 -2.9 -2.0 -1.1

Structural balance (percent of potential GDP)

-2.9 -4.8 -4.6 -3.9 -3.3 -2.6 -2.2 -1.6 -1.0

Primary balance

-0.6 -5.3 -4.9 -3.1 -2.0 -0.9 0.1 1.2 2.1

General government gross debt 1/

68.2 79.0 82.3 85.2 87.2 88.1 87.8 86.5 84.4

Money and interest rates (in percent)


Money market rate

3.8 1.0 0.8 ... ... ... ... ... ...

Government bond yield

4.2 3.6 3.1 ... ... ... ... ... ...

Balance of payments (in percent of GDP)


Exports of goods

21.3 18.1 20.2 22.6 23.0 23.0 22.9 23.0 23.0

  Volume growth (in percent)

-0.6 -12.2 9.4 6.4 4.6 3.8 3.9 3.9 3.8

Imports of goods

24.3 20.4 23.0 25.8 26.0 25.9 25.8 25.8 25.8

  Volume growth (in percent)

0.6 -10.6 8.3 6.5 3.9 3.7 3.8 3.8 3.8

Trade balance

-3.1 -2.3 -2.8 -3.1 -3.0 -2.9 -2.9 -2.8 -2.8

Current account

-1.7 -1.5 -1.7 -2.1 -1.9 -1.9 -1.8 -1.8 -1.7

FDI (net)

-3.2 -2.6 -2.0 -1.9 -1.8 -1.7 -1.6 -1.5 -1.4

Official reserves (US$ billion)

33.6 46.6 ... ... ... ... ... ... ...

Fund position (as of April 30, 2011)


Holdings of currency (percent of quota)

86.3 80.8 79.7 73.1 ... ... ... ... ...

Holdings of SDRs (percent of allocation)

58.1 95.9 96.1 96.1 ... ... ... ... ...

Quota (SDRs million)

10739 10739 10739 10739 ... ... ... ... ...

Exchange rates


Euro per U.S. dollar, period average 1/

0.68 0.72 0.75 0.70 ... ... ... ... ...

Nominal effective rate, ULC-styled (2000=100) 1/

113.8 113.7 110.4 111.2 ... ... ... ... ...

Real effective exchange rate, ULC-based (2000=100)

113.9 115.2 109.8 111.5 ... ... ... ... ...

Potential output and output gap


Potential output

1.2 1.0 0.8 1.1 1.3 1.4 1.5 1.5 1.6

Output gap

-0.7 -4.2 -3.6 -2.7 -2.1 -1.6 -1.0 -0.4 0.0

Social indicators


  Per capita GDP (2006): US$35,471; Life expectancy at birth (2006): 77.2 (male) and 84.1 (female);

  Poverty rate (2005): 12.1 percent (60 percent line), 6.3 percent (50 percent line);

  Income distribution (ratio of income received by top and bottom quintiles, 2004): 4.2.


Sources: French authorities; IMF staff estimates and projections. 

1/ For 2011, average for January-April.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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