IMF Executive Board Concludes 2014 Article IV Consultation with France

Press Release No.14/326
July 3, 2014

July 1, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with France.

The economy fared better than most other large euro areas economies through the crisis, reflecting the resilience of private consumption, lack of financial fragmentation, and lower levels of household and corporate debt. Banks’ financial position has also been strengthened. But after two years of near stagnation unemployment remains high. A loss of competitiveness has also weighed on growth, and compressed profit margins have constrained investment.

The outlook is for a gradual recovery, with GDP growth projected at 0.7 percent in 2014 and 1.4 percent in 2015, based on stronger external and domestic private demand, reflecting gains in real disposable income and improved profit margins. Inflation is expected to remain subdued at around 1 percent. These trends should allow the private sector to become a source of net job creation this year.

Fiscal adjustment has been very substantial over the past three years, but the deficit was still 4.2 percent in 2013. The authorities’ program targets continued adjustment with a view to closing the structural fiscal deficit over the medium term, based on a program of expenditure containment. It also contains supply side measures, including tax reductions to reinvigorate investment and job creation.

Executive Board Assessment2

Executive Directors noted that the French economy has shown resilience during the global financial crisis, but the pace of recovery has been slow. Going forward, Directors welcomed the authorities’ economic strategy outlined in the Stability Program and the National Reform Program, noting that the policies and objectives are well aligned. They concurred that an ambitious adjustment and reform agenda is critical to address structural imbalances, guard against future shocks, address the employment and competitiveness gaps, and boost the economy’s growth potential. In view of the implementation risks of this ambitious agenda, Directors considered that the strategy needs to be backed by comprehensive upfront measures in the fall budget, and could be boosted by deeper structural reforms.

Directors endorsed the authorities’ plan to undertake a steady and more moderate pace of fiscal adjustment, focusing on expenditure measures. They welcomed the progress made in reducing the fiscal deficit during difficult economic times. Looking ahead, they noted that the proposed pace of adjustment strikes an appropriate balance between the need to restore fiscal space and support recovery. Further, they considered that anchoring the adjustment on expenditure addresses the structural weakness of public finances, and urged the authorities to rely on structural measures to ensure a permanent slowdown in spending growth. Recognizing that these measures could be politically difficult to implement, they welcomed the authorities’ resolve to remain steadfast in pursuing the reform program, as there is little room for deviation if both tax cuts and deficit reduction are to be pursued simultaneously.

Directors welcomed the supply-side measures to revive investment and job creation, and encouraged further reforms to labor and product markets. They supported the renewed focus on fighting rents as a guiding principle to spur reform, and called for stronger effort to open protected sectors to greater competition. Directors encouraged the authorities to build on the labor market reforms taken since 2012 and to make the labor market more adaptable. They stressed the importance of enhancing the scope for enterprise-level negotiation based on a more cooperative social dialogue. Directors welcomed the efforts deployed to reduce unemployment among the low skilled, but also suggested that the minimum wage could be set with a view to increasing their job opportunities.

Directors observed that the economy and public finances are better shielded from banking shocks thanks to the efforts made by banks to build stronger liquidity and capital buffers and to an improved bank resolution framework. However, they noted that the regulatory framework is still evolving, and that additional adjustment will be needed on the part of banks to meet prudential requirements. Directors encouraged the authorities to ensure that banks’ key financing role is not constrained during this process, and to facilitate it by leveling the playing field in the taxation of financial instruments.



France: Selected Economic and Social Indicators, 2009–19
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Projections

Real economy (change in percent)

Real GDP

-2.9 2.0 2.1 0.3 0.3 0.7 1.4 1.7 1.8 1.9 1.9

Domestic demand

-2.6 2.1 2.0 -0.3 0.2 0.7 1.0 1.4 1.6 1.7 1.7

Nominal GDP (billions of euros)

1939 1998 2059 2091 2114 2156 2215 2284 2359 2442 2530

CPI (year average)

0.1 1.7 2.3 2.2 1.0 1.0 1.2 1.3 1.4 1.5 1.6

Unemployment rate (in percent)

9.1 9.3 9.2 9.8 10.3 10.3 10.2 10.0 9.7 9.4 9.3

Gross national savings (percent of GDP)

20.0 20.6 21.5 20.6 20.4 20.8 21.1 21.6 22.1 22.5 23.0

Gross domestic investment (percent of GDP)

21.3 21.9 23.2 22.7 22.0 22.4 22.1 22.2 22.3 22.4 22.7

Public finance (percent of GDP)

Central government balance

-6.0 -6.1 -4.4 -3.9 -3.3 -3.2 -3.1 -2.6 -2.1 -1.3 -0.5

General government balance

-7.2 -6.8 -5.1 -4.9 -4.2 -4.0 -3.4 -2.7 -2.1 -1.2 -0.3

Structural balance (percent of potential GDP)

-5.4 -5.5 -4.5 -3.8 -2.8 -2.4 -1.9 -1.6 -1.4 -0.9 -0.2

Primary balance

-4.9 -4.5 -2.6 -2.4 -2.1 -1.9 -1.3 -0.7 0.0 0.9 1.9

General government gross debt

78.0 80.8 84.4 88.7 91.8 94.3 95.1 95.0 94.0 92.0 89.1

Money and interest rates (in percent)

Money market rate 1/

0.7 0.5 0.8 0.1 0.0 0.1 ... ... ... ... ...

Government bond yield 1/

3.6 3.1 3.3 2.5 2.2 2.3 ... ... ... ... ...

Balance of payments (in percent of GDP)

Exports of goods

17.9 19.6 20.6 20.9 20.5 19.8 19.7 19.7 19.8 19.9 19.9

Volume growth (in percent)

-11.3 9.0 6.9 1.1 2.2 3.4 4.8 4.6 4.6 4.6 4.6

Imports of goods

20.1 22.3 24.3 24.3 23.5 22.8 22.2 21.9 21.8 21.7 21.5

Volume growth (in percent)

-9.4 8.9 6.3 -1.3 1.7 3.1 3.2 3.5 3.8 3.9 3.9

Trade balance

-2.2 -2.7 -3.7 -3.4 -2.9 -3.0 -2.5 -2.2 -2.0 -1.8 -1.6

Current account

-1.3 -1.3 -1.7 -2.1 -1.3 -1.5 -0.9 -0.5 -0.2 0.0 0.3

FDI (net)

-3.1 -1.2 -0.7 -0.5 0.3 0.0 -0.2 -0.4 -0.6 -0.8 -1.0

Official reserves (US$ billion)

46.6 55.8 48.6 54.2 50.8 ... ... ... ... ... ...

Fund position (as of December 31, 2013)

Holdings of currency (percent of quota)

80.8 79.7 73.1 69.6 74.2 ... ... ... ... ... ...

Holdings of SDRs (percent of allocation)

95.9 96.1 95.5 93.6 90.6 ... ... ... ... ... ...

Quota (SDRs million)

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

Exchange rates

Euro per U.S. dollar, period average

0.72 0.75 0.72 0.78 0.75 ... ... ... ... ... ...

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

104.8 102.4 102.4 100.1 102.1 ... ... ... ... ... ...

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

103.6 104.3 105.4 104.8 109.1 ... ... ... ... ... ...

Potential output and output gap

Potential output

1.1 0.9 0.9 0.9 1.0 1.0 1.1 1.2 1.3 1.4 1.5

Output gap

-3.1 -2.1 -0.9 -1.5 -2.2 -2.5 -2.2 -1.7 -1.1 -0.6 -0.2

Social indicators

Per capita GDP (2006): US$35,471; Life expectancy at birth (2009): 77.7 (male) and 84.4 (female);

Poverty rate (mid-2000s): 14.1 percent (60 percent line), 7.1 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 2014, January-March.


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.


2 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: http://www.imf.org/external/np/sec/misc/qualifiers.htm.



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