## 1. A Balanced Recovery in France: Growth, Investment and Employment ## Source details **Canonical URL:** [1. A Balanced Recovery in France: Growth, Investment and Employment](https://www.imf.org/-/media/files/publications/cr/2022/english/1fraea2022001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1fraea2022001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1fraea2022001.pdf.json) --- ### Context and recent developments - Covid-19 pandemic: third partial lockdown in early 2021; fifth wave underway at time of reporting. - Vaccination: about 76 percent of France’s population fully vaccinated by mid-December 2021; over 20 percent received additional booster shots. - Output and investment: - Output contracted by 8.0 percent in 2020; gap relative to pre-crisis levels nearly closed by 2021Q3. - Investment rebounded faster than consumption and already exceeds its pre-crisis level. - Investment surpassed its pre-crisis level in 2021Q3 by 1.3 percent. - In 2020 investment fell by about 8 percent (same magnitude as output). - Sectoral recovery: manufacturing production lags pre-crisis levels; construction and services nearly recovered all losses. - Supply constraints: supply difficulties exceeded demand difficulties for the first time since crisis onset; sourcing problems and recruitment difficulties are main contributors. - Sourcing difficulties acute in transportation and electronics sectors due to high dependence on international inputs. ### Inflation, wages, and prices - Since March 2021 the rebound in energy prices accounted for over 50 percent of the inflation rise. - Base effects accounted for about 51 percent of the projected increase in overall inflation for 2021. - Minimum wage: automatically increased by 2.2 percent in late 2021 due to exceptional rise in inflation; expected further adjustment in 2022. - Salary prospects: survey evidence and wage negotiation prospects point to a likely 2½ percent increase in salaries for 2022. - Market-implied breakeven inflation rate rose to 1.5 percent, below ECB’s medium-term target of 2 percent for the euro area. - Headline inflation estimated at about 2.1 percent on average in 2021; average inflation projected at 2.4 percent in 2022 with end-year inflation below 2 percent as transitory factors dissipate. ### Investment and labor market outcomes (Box 1 summary) - Investment and employment fully recovered by 2021Q3; output almost at par with pre-crisis levels; labor force participation exceeded pre-crisis level by about 0.5 percent. - NFCs: investment loss concentrated in a few sectors (e.g., real estate); corporate investment rate largely unchanged. - Government emergency measures prevented a much larger investment decline—investment could have fallen by over 30 percent in the absence of support (INSEE, 2021). - NFCs invested mainly in IT services, construction, and business services; IT investment reflected adaptation to virtual working. - Short-time work scheme (STWS) absorbed probable employment losses by preserving employment relationships and supporting adjustment via hours worked rather than layoffs. - Targeted recovery measures (e.g., hiring subsidies for youth) increased youth job creation and boosted apprenticeships. ### Labor market and social indicators - By end-2021Q3 employment and labor force participation both exceeded pre-crisis levels. - Underemployment decreased but remains high at around pre-crisis levels. - About one in five labor market participants (active and passively seeking jobs) was constrained either by absence of a job or by underemployment. - Poverty: initial estimates suggest poverty rate remained stable at about 14.6 percent in 2020 (INSEE, 2021). ### External sector and credit - Current account: deficit widened to 1.9 percent of GDP in 2020, driven by reduction in non-oil goods and services exports. - 2021 trade: non-oil goods deficit shrank and services surplus increased, especially in maritime transport; exports in automotive and aeronautics remained depressed. - Preliminary external position: broadly in line with fundamentals and desirable policies for 2021 after adjusting for one-off pandemic factors (Annex III). - SDR allocation: general SDR allocation of 1.1 percent of GDP increased gross international reserves; France committed to channel some allocation to support recovery in other countries. - Credit: credit to households and NFCs increased by 4.7 and 13 percent, respectively, in 2020; by July 2021 credit growth to NFCs eased to 2.7 percent; household credit growth accelerated to 6 percent. ### Fiscal response and public support - Government support absorbed over 80 percent of the overall income shock through transfer measures, including automatic stabilizers and measures supporting cheap debt. - Direct transfers (notably STWS and solidarity fund grants) reduced firms’ operational costs and preserved profits. - Liquidity measures: tax and social security payment deferrals and the state-guarantee scheme for bank loans (Prêt garanti par l’État, PGE). - Household excess savings: about €165 bn (6¾ percent of GDP) by 2021Q3, concentrated among higher income deciles. - Fiscal balances and debt: - Fiscal deficit widened to about 9 percent of GDP in 2020; expected to decline to 8.3 percent of GDP in 2021. - Debt ratio expected to remain broadly stable at about 115 percent of GDP. - Crisis and recovery envelope: - Total envelope reached about 28 percent of GDP in 2021; small expansion planned in 2022 budget brought total envelope to around 24 percent of GDP. - Included 6 percent of GDP in above-the-line measures, state guarantees of 14.2 percent of GDP (mostly through PGE), and below-the-line interventions of 0.9 percent of GDP. - France relance included 3½ percent of GDP of above-the-line stimulus—about half covered by NGEU grants—and 0.3 percent of GDP in public guarantees. - Out of a legislated envelope of €300 billion, about €140 billion PGE loans had been granted by October 2021. - Emergency support phased down and increasingly targeted; most emergency programs phased out by October 2021. ### Outlook and risks (staff projections and assessment) - Staff projections: - Output increase of 6¾ percent in 2021 with GDP surpassing pre-crisis levels by end-2021. - Growth projected at about 3.7 percent in 2022 and about 1.7 percent in 2023. - Households expected to draw down about 10 percent of their excess savings. - Unemployment rate expected to remain stable at about 8 percent in the near term. - Current account deficit estimated to narrow to 1.4 percent in 2021 and gradually normalize thereafter. - Medium term: - Output projected to grow near potential but remain below its pre-crisis trend; potential output projected to remain below its pre-crisis trajectory by about 1.1 percent. - Projected contributors to medium-term potential output loss include capital, labor, TFP, and capacity utilization. - Risks: - Near-term downside risks: new containment measures from virus variants, waning vaccine effectiveness, persistent supply-chain bottlenecks could slow recovery, weaken external position, and raise inflation. - Medium-term downside risks: weaker corporate balance sheets, disorderly transformations with adverse social/political consequences, lower trade partner demand from unresolved supply disruptions. - Upside risks: faster rundown of accumulated savings or stronger demand recovery in hard-hit sectors could raise near-term growth and reduce scarring. --- ### Box 2 — Household Savings and Spending Expectations - Excess savings by 2021Q3: €165 billion (mostly in deposits and equity). - Distribution: more than 50 percent of excess savings accrued to the top income decile; bottom decile dissaved. - Staff projection: savings ratio dips below its pre-crisis level in 2022 and gradually declines thereafter. - Estimated drawdown: around 10 percent of accumulated excess savings in 2022-2023 relative to pre-crisis counterfactual. - Consumption and residential construction account for about 60 percent of French GDP. - Uncertainty due to disposable income path and persistence of supply disruptions, notably for automobiles and electronics. - Behavioral drivers: spending intentions increasing, especially for home purchases and renovation, and among uppermost income decile. --- ### Fiscal policy stance, objectives, and reform priorities - Authorities agreed additional fiscal support focused on supply-side measures is warranted in 2022. - Medium-term: expenditure-based consolidation to be implemented once recovery is on firm ground; aim to stabilize public debt and get it on a declining path by 2026 by boosting potential growth and containing government expenditure. - Near-term priority: support recovery and minimize scarring by boosting workers’ skills and investment. - Energy price measures: broader and swift temporary support for households significantly impacted. - France 2030: viewed as aligning with priorities; ensure good governance and strong private-sector involvement. - Pension reform: authorities remain convinced reform should play a key role; structural spending reforms to achieve savings to be implemented after a new government takes office. ### Reform areas and indicative potential savings (as presented) - Pension system: France spends 20 percent more than peers on pensions; planned reform could aim at accelerating gradual increase in effective retirement by 10 years. - Civil service: initial target reduction of 120,000 public employees over 5 years; would require halving replacement ratio from 1¼ to ¾. - Unemployment benefit system: tightening eligibility, revising rules to calculate and cumulate benefits, introducing degressivity for high-salary workers can generate medium-term savings. - Tax expenditures: France spends 30 percent more than peers on tax expenditures and subsidies; eliminating fuel-related subsidies and streamlining others could yield sizable savings. - Carbon pricing: increasing carbon prices to €65 ($75) per ton by 2030 would contribute to environmental goals and provide additional revenue. - Numeric items preserved verbatim from source: - 4 percent of GDP in total; about 0.5 percent of GDP in fuel-related tax expenditures - 1 percent of GDP - 1/4 percent of GDP N/A - 13.6 percent of GDP (2019)0.6 percent of GDP - 12.2 percent of GDP (compensation of GG employees in 2019) - 0.2 percent of GDP - 1.6 percent of GDP (2019)0.1 percent of GDP --- ### Financial sector policies and resilience - Banks entered the crisis with comfortable capital and liquidity buffers; these improved through mid-2021. - Banks’ core tier 1 equity ratio increased by ¾ percentage points to 15.9 percent by mid-2021. - Lending expansion since early 2020 comprised almost exclusively of PGE-based loans and benefited from ECB accommodative financing. - Shift from stage 1 to stage 2 exposures suggests a likely but modest deterioration of the low NPL ratio going forward. - Existing buffers appear adequate to cope with expected loan losses even under a severe downside scenario (confirmed by EBA stress test, EBA 2021). - Insurance sector solvency ratio: recovered to 251 in early 2021 after dropping to 242 in 2020; still below pre-crisis ratio of 267. - Official sector exposures and guarantees: - Official sector holds directly or indirectly about 10 percent of non-financial corporate debt through CSPP and PGE; PGE accounts for about 6 percent of GDP. - Presently, ¼ percent of GDP of PGEs are expected to be called, carrying a guarantee of about 80 percent by the State. - Corporate solvency: - Widespread corporate defaults have not materialized; firm failures remained at historically low levels. - Aggregate accumulated deposits almost offset increase in corporate gross debt. - Previous equity need estimates of around €10-25 billion likely to be revised downwards; losses concentrated in transport, hotels, restaurants. - Real estate and household debt: - Household debt grew from just below 60 percent to over 100 percent of disposable income over the last decade; DSTI has increased. - 2019: ESRB issued a warning related to medium-term vulnerabilities in real estate. - Mitigating factors: mortgage interest rates are fixed; 97.5 percent of mortgage loans were covered by some guarantee in 2020 (ACPR 2021). - Bank profitability on housing loans estimated to be nil or negative since 2017 (ACPR 2021). - Macroprudential stance: - Broadly appropriate but may require tightening if recovery remains robust and debt continues to rise. - Traditional metrics point to a large positive credit gap expected to persist in 2022. - HCSF decision (September 14, 2021): leave the CCyB unchanged and expects to leave it at zero until at least end-2022. - Borrower-based measures (legally binding as of January 1, 2022): - Mortgage length limited to 25 years. - DSTI limit set to 35 percent (up from 33 percent in guidance). - Up to 20 percent of new mortgage loans excluded primarily for owner-occupied housing. - Staff supports prolonging exposure limits: limit on systemically important banks’ individual exposure to a high debt/low ICR firm to 5 percent of bank capital extended until June 30, 2023. - Normalization of support and regulatory measures: - Some firm support phased out, tightened, or will expire by mid-2022 (PGE). - Regulatory flexibility on loan moratoria has ended; temporary flexibility on liquidity and capital requirements expected to expire by end-2021 and end-2022, respectively. - Staff supports gradual normalization while remaining flexible to reactivate measures if needed. - Recommendations: proactively engage with viable but challenged corporates, deploy provisions and capital buffers, monitor intragroup transactions, and develop concentration thresholds. --- ### Structural policies: labor market, education, and competitiveness - STWS preserved employment relationships and limited drop in labor force participation. - Labor market tightening: long-term unemployment remains high; vacancies higher for a given level of unemployment (upward shift of Beveridge curve). - Hiring difficulties concentrated around shortage of skilled workers; labor market mismatch could slow recovery and lower potential output. - Policy priorities: - Strengthen school-to-work transition (improve access to vocational education for least qualified, increase skills certification, strengthen apprenticeship–vocational training links via dual education tracks). - Combine training with job-search assistance to improve firm-worker match. - Employment access constraints for youth: - Employment rate after leaving educational system with a general-education diploma was 48 percent (pre-crisis) and fell to 40 percent during the crisis. - Competitiveness and innovation: - Renewed emphasis on measures to raise competitiveness to enhance productivity and external sector resilience. - Additional product and service market reforms to ease regulation and administrative burden on start-ups. - Targeted efforts to foster innovation via human capital investment and funding for basic research, including in sectors at technological frontier. - Support for reshoring should be strictly limited to addressing national security concerns. - Noted deterioration in export performance over last decade, particularly in manufacturing, partly due to more stringent regulation and high entry barriers in services. --- ### Green transition and climate policy - Staff welcome accelerated push for carbon neutrality; EU “Fit for 55” aligned with France’s 2019 Climate and Energy Law. - Recommendations: - Implement additional green policies and adequate carbon pricing with mitigating measures for low-income households. - Leverage French firms in automobiles, power generation, and aeronautics to establish technological lead in green energy and zero-emission transport. - Improve worker training and skills matching to facilitate green transition without employment losses. - Demand for green workers: about 17 percent of overall vacancies and rising, exceeding growth of green job-seekers. - France’s climate-related initiatives: - France Relance devotes €30 billion over 3 years to climate transition. - Climate and Resilience Act adopted August 2021. - France 2030 plan: €30 billion in budget funds and €4 billion in equity investments over 5 years with allocations such as €8 billion for clean energy and €4 billion for future transport. --- ### Public Debt Sustainability and Risks (Annex IV) - Debt-to-GDP: - Projected to reach about 115 percent of GDP in 2021 and to increase by another one percent of GDP over the medium-term under staff’s baseline. - Debt level projected to decline from 115.1 percent of GDP in 2020 to 113.3 percent of GDP in 2022, then increase to about 115.7 percent of GDP by 2026 under baseline. - Primary fiscal deficit: - Projected to reach 7.1 percent of GDP in 2021 and decline to 4.1 percent of GDP in 2022; projected to continue declining to about 2½ percent of GDP over the medium run. - Effective interest rate: expected to remain contained at around 0.9 percent on average over 2022-26. - Gross financing needs: projected to decline from more than 27 percent of GDP in 2021 to about 22 percent of GDP in 2026. - Fan chart probabilities: - 50 percent probability of debt reaching between 108 and 120 percent of GDP by 2026 (no restriction on shocks). - 50 percent probability of debt between 113 and 122 percent of GDP by 2026 (upside risks constrained). - Stress scenarios: - Combined macro-fiscal shock: debt about 124 percent of GDP in 2026; average gross financing needs over 2022-26 about 2.4 percent of GDP higher than baseline. - Standalone interest rate shock: debt about 119 percent of GDP by 2026. - Contingent liability scenario (about 3 percent of GDP in guarantees called): debt around 121 percent of GDP by 2026. - Growth shock: public debt increases to about 119 percent of GDP by 2026. - Mitigating factors: low funding costs, long average maturity of sovereign debt (around 9 years as of July-2021), home bias and large institutional investor base, low share of debt in foreign currency, financing from Next Generation EU Recovery Fund. - Public guarantees: PGE envelope of €300 billion (out of €334 billion total pandemic guarantees); take-up stabilized at much lower level, less than ½ of total envelope. --- ### External Debt Sustainability (External DSA) - External debt path (external debt percent of GDP by year): - 2016: 201.2 - 2017: 200.2 - 2018: 200.2 - 2019: 198.1 - 2020: 227.6 - 2021: 217.9 - 2022: 214.0 - 2023: 214.2 - 2024: 213.9 - 2025: 213.9 - 2026: 213.8 - Baseline: external debt projected to decline from 218 percent of GDP in 2021 to 214 percent of GDP in 2026, remaining close to pre-COVID levels. - Debt composition (shares expressed as percent of GDP): - Globally active banks: 104 percent of GDP. - Government: 54 percent of GDP. - Intercompany loans: about 10 percent of GDP. - Stress-test outcomes: - Historical scenario: external debt increases to about 261 percent of GDP in 2026. - Real depreciation (30% one-time in 2022): external debt rises to 245 percent of GDP and reaches 249 percent by 2026. - Growth shock scenario outcome shown as 231 percent of GDP. - Financing metrics: - External debt-to-exports ratios very high (e.g., 637.4 in 2016 and series declining to 635.0 in 2026 as presented). - Gross external financing needs (US$ billions): 1,904.0 (2016), 2,069.6 (2017), 1,233.3 (2018), 2,238.7 (2019), 2,434.1 (2020), 2,848.9 (2021), 3,009.7 (2022), 3,097.4 (2023), 2,323.0 (2024), 3,352.7 (2025), 3,478.9 (2026). - Assessment: external debt sustainable under baseline due to low cost of debt, high foreign assets, limited foreign-currency debt, and positive non-interest current account; vulnerable to prolonged weak growth or large real depreciation. --- ### High-frequency indicators, containment measures, and targeted support (early 2022) - Banque de France survey (Dec 20–Jan 6): GDP estimated slightly above pre-crisis level in December; recruitment difficulties remain significant. - Inflation: harmonized index of consumer prices rose by 3.4 percent year on year in December. - Covid-19: rapid Omicron spread; more than 300,000 daily new infections since end-December; rolling 7 day infection rate reached 4,000 per million as of January 10; positivity rate rose to 18 percent. - Containment measures: compulsory teleworking for minimum three days/week; limits on gatherings; nightclubs closed; international travel restrictions; mandatory masks; health pass amended to require proof of vaccination. - Economic impact: staff expects restrictions to lower growth for 2022 by about 0.2 percentage point relative to previous projections. - Targeted fiscal support (announced January 3): - STWS replacement rate increased to 100 percent for affected firms until end of January. - Transfer program for fixed costs extended to entire tourism sector; turnover loss threshold reduced from 65 percent to 50 percent. - Cost expected to remain limited and covered within approved envelopes. - New Bpifrance long-term lending for firms suffering supply difficulties. --- *Source: IMF staff, “A Balanced Recovery in France: Growth, Investment and Employment” (chapter), 1fraea2022001 (excerpts).* ### 1. A Balanced Recovery in France: Growth, Investment and Employment _________________________ 7 ### 1. A Balanced Recovery in France: Growth, Investment and Employment ### Context and recent developments - The Covid-19 pandemic exacted a heavy economic and health toll in France; a third partial lockdown was introduced in early 2021 and a fifth wave was underway at the time of reporting. - About 76 percent of France’s population was fully vaccinated by mid-December 2021, and over 20 percent received additional booster shots. - Output contracted by 8.0 percent in 2020 but rebounded with the gap relative to pre-crisis levels nearly closed by 2021Q3. - Investment rebounded faster than consumption and already exceeds its pre-crisis level. - Sectoral recovery is uneven: manufacturing production lags pre-crisis levels, while construction and services have nearly recovered all their losses. - Supply constraints are starting to bind: for the first time since the crisis onset, supply difficulties have exceeded demand difficulties, with almost twice as many firms reporting supply issues as during the pre-crisis period. Sourcing problems and recruitment difficulties are main contributors. - Sourcing difficulties are particularly acute in the transportation and electronics sectors due to high dependence on international inputs. ### Inflation, wages, and prices - Since March 2021, the rebound in energy prices has accounted for over 50 percent of the inflation rise. - Much of the increase is also linked to base effects, accounting for about 51 percent of the projected increase in overall inflation for 2021. - The minimum wage automatically increased by 2.2 percent in late 2021 due to the exceptional rise in inflation and is expected to be adjusted further in 2022. - Survey evidence and wage negotiation prospects point to a likely 2½ percent increase in salaries for 2022. - The market-implied breakeven inflation rate rose to 1.5 percent, remaining below the ECB’s medium-term target of 2 percent for the euro area. ### Investment and labor market outcomes (Box 1 summary) - Investment and employment fully recovered by 2021Q3; output was almost at par with pre-crisis levels while labor force participation exceeded its pre-crisis level by about 0.5 percent. - In 2020 investment fell by about 8 percent (same magnitude as output), unlike in the global financial crisis when investment fell more strongly than output. - For Non-Financial Corporates (NFCs) the investment loss was concentrated in a few sectors (e.g., real estate); the corporate investment rate was largely unchanged. - Government emergency measures prevented a much larger investment decline—investment could have fallen by over 30 percent in the absence of support (INSEE, 2021). - Investment surpassed its pre-crisis level in 2021Q3 by 1.3 percent. - NFCs invested mainly in IT services, construction, and business services; IT investment reflected the need to adapt to virtual working. - The short-time work scheme (STWS) absorbed probable employment losses by preserving employment relationships and supporting adjustment via hours worked rather than layoffs. - Targeted recovery measures, such as hiring subsidies for youth, increased youth job creation, notably through boosting apprenticeships. ### Labor market and social indicators - By end-2021Q3, employment and labor force participation both exceeded pre-crisis levels. - The share of people inactive but passively seeking work fell after spiking during the acute crisis phase. - Underemployment decreased but remains high at around pre-crisis levels. - About one in five labor market participants (active and passively seeking jobs) was constrained either by the absence of a job or by underemployment. - Initial estimates suggest the poverty rate remained stable at about 14.6 percent in 2020 (INSEE, 2021). ### External sector and credit - The current account deficit widened to 1.9 percent of GDP in 2020, driven by a reduction in non-oil goods and services exports. - In 2021 the quarterly trade balance showed some normalization: the non-oil goods deficit shrank and the services surplus increased, especially in maritime transport. - Exports in automotive and aeronautics sectors remained depressed. - A preliminary assessment suggests France’s external position is broadly in line with fundamentals and desirable policies for 2021 after adjusting for one-off pandemic factors (Annex III). - The general SDR allocation of 1.1 percent of GDP increased gross international reserves and France committed to channel some allocation to support recovery in other countries. - Credit: credit to households and NFCs increased by 4.7 and 13 percent, respectively, in 2020. By July 2021 credit growth to NFCs eased to 2.7 percent; household credit growth accelerated to 6 percent. ### Fiscal response and public support - Government support absorbed over 80 percent of the overall income shock through transfer measures, including automatic stabilizers and measures supporting cheap debt. - Direct transfers (notably STWS and solidarity fund grants) reduced firms’ operational costs and preserved profits. - Tax and social security payment deferrals and the state-guarantee scheme for bank loans (Prêt garanti par l’État, or PGE) provided ample liquidity. - Households accumulated excess savings worth about €165 bn (6¾ percent of GDP) by 2021Q3, concentrated among higher income deciles. - The fiscal deficit widened to about 9 percent of GDP in 2020, is expected to decline to 8.3 percent of GDP in 2021. - The debt ratio is expected to remain broadly stable at about 115 percent of GDP. - Total envelope for crisis and recovery measures reached about 28 percent of GDP in 2021; a small expansion planned in the 2022 budget brought the total envelope to around 24 percent of GDP. - This included 6 percent of GDP in above-the-line measures, state guarantees of 14.2 percent of GDP (mostly through PGE), and below-the-line interventions of 0.9 percent of GDP. - France’s recovery plan (France relance) included 3½ percent of GDP of above-the-line stimulus—about half covered by NGEU grants—and 0.3 percent of GDP in public guarantees. - Out of a legislated envelope of €300 billion, about €140 billion PGE loans had been granted by October 2021. - As the recovery progressed, emergency support was scaled down and increasingly targeted; most emergency programs had been phased out by October 2021. ### Outlook and risks - Staff projections: - Output increase of 6¾ percent in 2021 with GDP surpassing pre-crisis levels by end-2021. - Growth projected at about 3.7 percent in 2022 and about 1.7 percent in 2023. - Households expected to draw down about 10 percent of their excess savings. - Baseline assumes accommodative financial conditions and continued containment of infection outbreaks. - Headline inflation estimated at about 2.1 percent on average in 2021. - Average inflation projected at 2.4 percent in 2022 due to prolonged supply-chain issues; transitory factors expected to dissipate during the year, bringing end-year inflation below 2 percent. - Unemployment rate expected to remain stable at about 8 percent in the near term. - Current account deficit estimated to narrow to 1.4 percent in 2021 and gradually normalize thereafter. - Over the medium term, output is projected to grow near potential but remain below its pre-crisis trend; potential output is projected to remain below its pre-crisis trajectory by about 1.1 percent. - Projected contributors to medium-term potential output loss include capital, labor, TFP, and capacity utilization (chart decomposition present in source). - Near-term risks are tilted to the downside: - New containment measures from virus variants, waning vaccine effectiveness, and persistent supply-chain bottlenecks could slow the recovery, weaken the external position, and raise inflation. - Downside medium-term risks: weaker corporate balance sheets, disorderly transformations with adverse social/political consequences, and lower trade partner demand from unresolved supply disruptions. - Upside risks: faster rundown of accumulated savings or stronger demand recovery in hard-hit sectors could raise near-term growth and reduce scarring. *Source: IMF staff, “A Balanced Recovery in France: Growth, Investment and Employment” (chapter).* ### Box 2. Household Savings and Spending Expectations ### Box 2. Household Savings and Spending Expectations ### Accumulation and distribution of excess savings - Households saved approximately €165 billion beyond pre-crisis savings levels by 2021Q3, mostly in deposits and equity (¶8). - Early evidence from credit card transactions suggests that more than 50 percent of the excess savings accrued to the top income decile, while the bottom decile dissaved (Bounie et. al., 2020). - Consumer expectations survey evidence shows top income households accumulated savings both in absolute and relative terms. - Distributional concern: a persistent widening of the savings rate differential between the top and bottom income deciles could affect wealth inequality dynamics (see Garbinti, Goupille-Lebret and Piketty, 2021). ### Prospects for drawdown and macro implications - Staff project the savings ratio to dip below its pre-crisis level in 2022 and gradually decline thereafter, driven by strong consumption and residential construction growth. - Consumption and residential construction together account for about 60 percent of French GDP. - The estimated extent of savings drawdown (difference between 2022-2023 savings level and a counterfactual implied by the pre-crisis savings rate) is around 10 percent of accumulated excess savings. - Considerable uncertainty surrounds this estimate due to: - The path of disposable income. - The persistence of supply disruptions that could constrain consumption growth, notably for automobiles and electronics. - Risks and possible outcomes: - A larger-than-expected savings drawdown could further increase growth on the upside. - If all excess savings are directed towards consumption, this could induce a rise in inflation (see Annex IV). ### Behavioral drivers and sectoral detail - Households’ spending intentions continue to increase, especially for home purchases and renovation, and among the uppermost income decile. - Despite traditionally lower marginal propensity to consume among the rich, some drawdown of excess savings could occur through increased home investments. ### Key statistics and exact figures - Excess savings by 2021Q3: €165 billion. - Share of excess savings accruing to top income decile: more than 50 percent. - Estimated drawdown of accumulated excess savings in 2022-2023 (relative to pre-crisis counterfactual): around 10 percent of accumulated excess savings. - Share of GDP accounted for by consumption and residential construction: about 60 percent. - Projection timing: savings ratio dips below pre-crisis level in 2022. *Sources: INSEE, IMF staff estimates; EC Consumer Expectations Survey; Bounie et. al., 2020.* ### 25. The authorities agreed that additional fiscal support focused on supply-side measures ### 1fraea2022001 - 25. The authorities agreed that additional fiscal support focused on supply-side measures ### Fiscal policy stance, objectives, and near-term priorities - Authorities agreed additional fiscal support focused on supply-side measures is warranted in 2022. - They backed a medium-term expenditure-based consolidation plan to be implemented only once the recovery is on firm ground. - Near-term priority: support the recovery and minimize scarring by boosting workers skills and investment. - The improvement in the fiscal deficit envisaged in the 2022 budget would not constitute a tightening of the fiscal stance but an appropriate scaling down of emergency support programs. - Measures in response to rising energy prices: authorities preferred a broader and swift approach to provide timely support to all households significantly impacted; these measures would be temporary. - Priority beyond 2022: redress France’s public finances and rebuild fiscal buffers while making space for critical investment to support the green and digital transformation, and to facilitate reallocation of resources. - The “France 2030” plan is viewed as aligning with these priorities; ensuring good governance of the program with strong private-sector involvement is key. - Authorities aim at stabilizing public debt and get it on a declining path by 2026, as recommended by staff, by boosting potential growth factors and containing government expenditure, prioritizing growth-friendly expenditure. - Authorities remain convinced a reform of the pension system should play a key role; structural spending reforms to achieve savings will need to be implemented after a new government takes office. ### Reform areas and indicative potential savings (as presented) - Pension system - France spends 20 percent more than peers on pensions. - The planned reform could aim at accelerating the gradual increase in the effective retirement already envisaged in the current system by 10 years. - Civil service - The administration initially targeted a reduction of 120,000 public employees over 5 years. - This would require halving the replacement ratio of retiring government workers (from 1¼ to ¾). - Unemployment benefit system - Some reform pillars (tightening eligibility requirements, revising rules to calculate and cumulate benefits, introducing degressivity in benefits for high-salary workers) can generate savings over the medium term. - Tax expenditures - France spends 30 percent more than peers on tax expenditures and subsidies. - Eliminating subsidies and tax expenditures on fossil fuels (where France spends significantly more than peers) and streamlining others could yield sizable savings. - Carbon pricing - Plans to increase carbon prices were paused in 2019 following protests. - Increasing carbon prices to €65 ($75) per ton by 2030 would contribute to environmental goals and provide additional revenue. - Numeric items shown in the source (preserved verbatim): - 4 percent of GDP in total; about 0.5 percent of GDP in fuel-related tax expenditures - 1 percent of GDP - 1/4 percent of GDP N/A - 13.6 percent of GDP (2019)0.6 percent of GDP - 12.2 percent of GDP (compensation of GG employees in 2019) - 0.2 percent of GDP - 1.6 percent of GDP (2019)0.1 percent of GDP ### Financial sector policies and system-wide outcomes - Policy interventions allowed the financial system to provide liquidity and increase capital buffers simultaneously. - Banks entered the crisis with comfortable capital and liquidity buffers; these improved through mid-2021. - Banks’ core tier 1 equity ratio increased by ¾ percentage points to 15.9 percent by mid-2021, partly reflecting increased capital through profit retention. - Lending expansion since early 2020 comprised almost exclusively of PGE-based loans and benefited from ECB accommodative financing. - Shift from stage 1 to stage 2 exposures suggests a likely but modest deterioration of the low NPL ratio going forward. - Existing buffers appear adequate to cope with expected loan losses even under a severe downside scenario, as confirmed by the recent EBA stress test (EBA 2021). - Insurance sector solvency ratio recovered in early 2021 to 251 after dropping to 242 in 2020, but still below pre-crisis ratio of 267. - Low interest rate environment expected to continue weighing on financial sector performance. ### Interconnectedness, official exposures, and contingent liabilities - Official sector holds directly or indirectly about 10 percent of non-financial corporate debt through the CSPP and the PGE; the PGE accounts for about 6 percent of GDP. - Presently, ¼ percent of GDP of PGEs are expected to be called, carrying a guarantee of about 80 percent by the State with the remainder of the risk held by the financial sector. - Large public support increased risk from interconnectedness, interest rate changes, and asset price corrections amidst larger balance sheets. - Over the last two decades, debt ratios for French institutional sectors have moved from levels below or aligned with the euro area to threshold levels associated with negative effects for consumption and GDP growth. - Asset valuations appear stretched; (equity) price-earnings ratios are well above long-term average. ### Corporate solvency, deposits, and sectoral risk concentration - Wide-spread corporate defaults have not materialized; firm failures remained at historically low levels even as take-up of support measures decline or expire. - Declining demand for credit mediation, robust firm creation, strong hiring, and a robust rebound in many sectors reduce risk from corporate balance sheet scarring. - Aggregate accumulated deposits almost offset the increase in corporate gross debt. - Previous equity need estimates of around €10-25 billion are likely to be revised downwards; losses would be concentrated in hardest-hit sectors (transport, hotels, restaurants). - Low demand for quasi-equity measures (prêts participatifs) may reflect lower need and their complex structure and higher cost compared to publicly guaranteed loans—especially for SMEs. ### Real estate, household debt, and borrower protections - Household debt grew from just below 60 percent to over 100 percent of disposable income over the last decade; debt service to disposable income (DSTI) has increased. - 2019: ESRB issued a warning related to medium-term vulnerabilities in the real estate sector (higher prices, weaker lending standards, elevated household debt, rapid mortgage lending growth). - Supervisory action by the High Council for Financial Stability (HCSF) has capped deterioration in lending standards, but low rates, inelastic housing supply, and demand for home renovations continued to fuel price growth in 2020 and 2021. - Mitigating factors: - Mortgage interest rates are fixed. - Employment losses protected by unemployment insurance. - Banks are partially protected via mortgage insurance and borrowers’ legal obligations. - In 2020, 97.5 percent of mortgage loans were covered by some guarantee (ACPR 2021). - Bank profitability on housing loans estimated to be nil or negative since 2017 (ACPR 2021); long-term fixed-rate mortgages pose persistent profitability risk, which would intensify with selected defaults or increased funding costs. ### Macroprudential stance and borrower-based measures - Macroprudential stance broadly appropriate but may require tightening if recovery remains robust and debt continues to rise. - Traditional metrics point to a large positive credit gap (ESRB and BIS) expected to persist in 2022; PGE-driven increase in loans blurs metrics. - HCSF decision (September 14, 2021): leave the CCyB unchanged and expects to leave it at zero until at least end-2022. - Staff supports transparency on timing of reactivation; timely activation—by 2023 under the baseline—would be favored if private sector borrowing and asset valuations increase. - Borrower-based measures (declared legally binding as of January 1, 2022): - Banks must limit mortgage length to 25 years. - DSTI limit set to 35 percent (up from 33 percent in the guidance). - Up to 20 percent of new mortgage loans excluded primarily for owner-occupied housing. - As of August 2021, the banking sector was within the flexibility margin. - If trends continue, fine-tuning borrower-based measures or deploying complementary measures (e.g., sectoral systemic risk buffer) may be appropriate. - Staff supports prolonging exposure limits: limit on systemically important banks’ individual exposure to a high debt/low ICR firm to 5 percent of bank capital extended until June 30, 2023. ### Normalization of corporate support and regulatory measures - Some firm support measures have been phased out (tax deferrals and solidarity fund), tightened (STWS), or will expire by mid-2022 (PGE). - Regulatory flexibility on loan moratoria has ended; temporary flexibility on liquidity and capital requirements for banks expected to expire by end-2021 and end-2022, respectively. - Staff supports gradual normalization of regulatory, capital, and liquidity measures while remaining flexible to reactivate if needed. - Recommendations for banks: - Proactively engage with viable but challenged corporates to design solutions to contain liquidity and solvency problems. - Use available options including prêts participatifs, which may need readjustment to become more attractive. - Reflect potential banking sector losses by deploying provisions and capital buffers. - Closely monitor conglomerate intragroup transactions and develop concentration thresholds to limit risk from highly indebted firms. ### Authorities’ view on financial sector risks - Authorities agreed with need to gradually normalize emergency support measures and proactively address potential buildup of pockets of risks. - They consider provisions and buffers in the banking sector robust to potential asset deterioration from selected exposures as support is unwound, but agreed continued close monitoring is warranted. - Authorities deem risks from the real estate sector contained and adequately covered by existing borrower-based measures, but agree continued vigilance is required. - New reporting tool for detailed intragroup transactions and concentration risk within conglomerates seen as important for enhanced monitoring and future revaluation of exposure thresholds. ### Structural policies: labor market, education, and competitiveness - Labor market response to the crisis better than expected due to large-scale expansion of the STWS, which preserved employment relationships and limited drop in labor force participation. - Labor market conditions tightening; long-term unemployment remains high; vacancies higher for a given level of unemployment (upward shift of the Beveridge curve). - Firms report increased hiring difficulties concentrated around shortage of skilled workers; labor market mismatch could slow recovery and lower potential output. - 2022 budget measures to increase skills training could help; to increase effectiveness, combine training with job-search assistance to improve firm-worker match. - Employment access constraints especially binding for youth: - Employment rate after leaving the educational system with a general-education diploma was 48 percent (pre-crisis) and fell to 40 percent during the crisis. - Policy priorities to ensure equitable recovery: - Strengthen school-to-work transition (improve access to vocational education for least qualified, increase skills certification, strengthen link between apprenticeship and vocational training through dual education tracks). - Competitiveness and productivity recommendations: - Renewed emphasis on measures to raise competitiveness to enhance productivity and external sector resilience. - Additional product and service market reforms to ease regulation and administrative burden on start-ups. - Targeted efforts to foster innovation via human capital investment and funding for basic research, including in sectors at the technological frontier and in a few key sectors exposed to supply constraints. - Support for reshoring should be strictly limited to addressing national security concerns. - Noted deterioration in export performance over last decade, particularly in manufacturing, partly due to more stringent regulation and high entry barriers in services. *Source: IMF staff and authorities discussion as presented in the provided chapter content.* ### 38. Staff welcome the accelerated push for achieving carbon neutrality. The EU’s “Fit for ### 38. Staff welcome the accelerated push for achieving carbon neutrality. The EU’s “Fit for ### Accelerated push for carbon neutrality and green policies - Staff welcome the accelerated push for achieving carbon neutrality and note the EU’s “Fit for 55” policies introduced more ambitious emission reduction targets, in line with France’s 2019 Climate and Energy Law. - To achieve this challenging goal the authorities should implement additional green policies to reduce emissions and strengthen existing ones, including adequate carbon pricing with mitigating measures for low-income households. - Leverage French firms’ strong presence in automobiles, power generation, and aeronautics to establish a technological lead in green energy generation and zero emission transportation. - Measures to improve worker training and skills matching are particularly important to facilitate the green transition without generating employment losses and to meet the increasing demands of the new green economy. - The demand for green workers is about 17 percent of overall vacancies and is rising, exceeding the growth of green job-seekers. Training and work-experience can improve job transitions from polluting to green occupations. ### Authorities’ views on labor market, competitiveness, and green transition - Authorities shared staff concerns on labor market frictions and the need to boost competitiveness but highlighted that past structural reforms helped generate the strong employment recovery in 2021. - Agreement that alleviating skills mismatches and reducing inequalities in youth employment outcomes remain key for boosting growth. - Authorities concurred that training and skills certification would further enhance labor market prospects, reallocation and reduce the inequality of opportunities. - Authorities view recent programs as helpful: - contrat d’engagement jeune (targeted at youth out of work and education) - mesures du plan de relance pour le développement des compétences et l’insertion dans l’emploi - plan de reduction des tensions de recrutement - On competitiveness, authorities noted France has managed to stabilize its export performance in recent years but agreed additional efforts in innovation and human capital enhancement would further improve competitiveness. - Support for reshoring is strictly limited to addressing strategic autonomy concerns. - Authorities emphasized recent efforts toward green transformation via the Climate and Resilience Law and green investments in France Relance and France 2030 plans. ### Staff appraisal — macroeconomic recovery, risks, and outlook - Strong progress on vaccination and expansive fiscal support have: - effectively contained the COVID virus, - cushioned the crisis, - fueled the recovery. - The economy has nearly regained its pre-crisis level by late 2021. - Supply constraints from ongoing global supply chain disruptions and recruitment difficulties are starting to weigh on production. - Consumer prices are increasing, mostly driven by transitory factors expected to gradually dissipate in the course of next year. - Employment growth is robust and the unemployment rate has remained relatively stable. - Strong growth is still expected for 2022 but forecast depends on: - continued containment of COVID, - normalization of current supply chain difficulties, - an accommodative policy environment. - External position preliminarily assessed to be broadly in line with medium-term fundamentals and desirable policy settings. - Over the medium term, output is projected to grow near potential but remain somewhat below its pre-crisis trend. - Near-term risks are tilted to the downside: further infection waves, waning vaccine effectiveness, more persistent supply-chain bottlenecks. - Upside risks: faster rundown of accumulated savings or stronger demand recovery in hard-hit sectors could raise near-term growth but could also exacerbate inflationary pressures. ### Fiscal stance and consolidation recommendations - A moderately expansionary fiscal stance is warranted in 2022; any additional stimulus should be targeted on supply-side measures to boost potential growth. - Staff supports investment policies in France Relance and NextGen EU programs. - The recently announced France 2030 plan could boost critical innovation and investment, provided it includes a significant independent private sector component. - Fiscal policy should remain flexible and additional targeted relief should be provided if downside risks materialize. - Staff supports compensating vulnerable households through targeted and temporary instruments but advises against overlapping broad-based transfers and long-lasting price-control measures. - Over the medium term, a gradual but comprehensive and sustained fiscal consolidation is needed to reverse rising public debt trends. - Staff recommends an ambitious structural consolidation effort gradually implemented over 7 years: - A structural primary fiscal effort of around 0.6 percent of GDP per year during 2023-26, - Rising to around 0.8 percent of GDP thereafter until the fiscal balance reaches the authorities’ previous MTO (a deficit of 0.4 percent of GDP). - If the recovery is stronger than expected, revenue windfalls should be fully used to reduce the deficit and reach the MTO earlier. - Much can be achieved by pursuing planned reforms (such as pensions), but further efforts are needed to sustainably contain current expenditure growth. - Fiscal commitments should be backed by a strong expenditure rule, based on a multiyear commitment for expenditure at the general government level, including a mechanism to monitor deviations and assure compliance with medium-term objectives. - Strengthening the competencies and capacities of the HCFP, including to assess France’s debt sustainability, is critical. ### Banking and financial sector resilience - The banking sector has withstood the crisis well and provided ample credit to the economy. - Widespread corporate defaults have not materialized, although sector-specific solvency risk could still emerge as emergency support measures phase out. - Bank asset quality should continue to be monitored and banks should proactively engage with viable but challenged corporates to design solutions. - Any potential banking sector losses should be reflected by deploying provisions and capital buffers. - Closely monitoring conglomerate intragroup transactions and developing concentration thresholds to limit risk from highly indebted firms will help strengthen resilience. - As the recovery firms, incentives could be adjusted to reduce extraordinary contingent liabilities of the State in a timely manner. ### Macroprudential stance and housing market risks - The macroprudential stance remains broadly appropriate but may require tightening if risks from debt-driven asset valuations increase. - Staff supports timely re-activation of the counter-cyclical capital buffer—possibly in 2023—if the recovery remains robust. - Supervisory measures have limited and partially reversed a deteriorating trend in mortgage lending standards, but risks from the real estate market require continued vigilance. - Real estate price growth remained dynamic, fueled by low interest rates and a relatively inelastic housing supply, which could further increase household debt. - If trends continue, fine tuning borrower-based measures or deploying complementary measures may be appropriate to limit excessive risk-taking. ### Labor market policies to support recovery and inclusion - Continued action to address labor-market frictions and ensure equitable opportunities for the youth will enable a speedy and durable recovery. - Job creation rebounded quickly as containment measures were removed, possibly reflecting dividends from earlier labor market reforms. - Labor market conditions are tightening, reflected in the rise in vacancies and increased recruitment pressures faced by firms. - To prevent labor mismatches from slowing the recovery, additional policies should be aimed at alleviating skills shortages, such as combining job-search assistance schemes with training programs. - Rectifying educational disparities affecting access to employment, through measures strengthening the school-to-work transition, will enable growth dividends to be equitably and sustainably distributed. ### Competitiveness and innovation - Policies to raise competitiveness will help enhance productivity and increase external sector resilience. - France stabilized its export performance in recent years after marked deterioration in the early 2000s, but further improvement is needed. - Additional product market reforms to ease regulation and entry barriers in non-tradable service sectors would help boost export growth and productivity. - Targeted efforts to foster innovation via human capital investment and funding for basic research, including in sectors at the technological frontier, would enhance competitiveness and increase production capacities. - If properly designed and managed, the France 2030 program could also help. ### Proposed consultation cycle - It is proposed that the next Article IV consultation take place on the standard 12-month cycle. *Source: 1fraea2022001 - IMF staff report (excerpts).* ### Annex II. 2019 Key FSAP Recommendations—Implementation ### Annex II. 2019 Key FSAP Recommendations—Implementation ### Preemptive Management of Systemic Vulnerabilities - Engage with ECB and other EU agencies on use of Pillar II measures to address bank-specific residual risk from concentration of exposures to large indebted corporates. - Agency: ACPR - Timing: I (Immediate) - Implementation status: After a “pragmatic” (simplified) SREP for the 2020 exercise, in 2021 the ECB conducted a full SREP with a special focus on the assessment of credit risk (including concentration risk). Regular SREP expected to maintain P2 requirement levels broadly in line with previous years, with a marginal increase largely driven by Non Performing Exposure provisioning shortfall add-ons. - Develop analytical framework for borrower-based measures for corporates. Consider a sectoral Systemic Risk Buffer (SRB) if risks intensify. - Agency: HCSF - Timing: NT (Near term) - Implementation status: A SyRB analytical assessment has been carried out. It was concluded that application of Art. 458 fits risks in the corporate sector better and is more effective. - Evaluate options to further incentivize corporates to finance through equity rather than debt. - Agency: MoF - Timing: NT - Implementation status: Several measures in the Recovery plan aim at incentivizing equity financing, including the Label Relance, the Fonds France Relance Etat-Régions and the participatory loans. ### Ensuring Adequate Liquidity Management and Buffers - Develop with the ECB options to manage any disruptions in wholesale funding markets. Consider liquidity buffers to cover at least 50 percent of wholesale funding outflows over/up to five days horizon for all major currencies. - Agencies: ACPR, ECB - Timing: NT - Implementation status: ECB and ACPR, following BCBS and EBA statements, reminded banks that liquidity buffers are built to be used in stress. Banks currently prefer to maintain a significant liquidity buffer, above the 100% usual threshold. At the current COVID-19 juncture, no need to add or change liquidity buffer requirements. ECB judged liquidity risks not particularly high. Entry into force of the NSFR new prudential requirement in June 2021 added liquidity constraints on wholesale funding resources. - Actively engage with the ESRB and others for speedy development of liquidity and leverage related tools for insurers and investment funds. - Agencies: BdF, HCSF, ACPR, AMF - Timing: NT - Implementation status: BdF contributed to the “low interest expert group report” discussing leverage and liquidity. BdF is active in designing the ESRB recommendation on money market funds. For insurers, review of Directive 2009/138/EC aims to enhance liquidity monitoring and supervision by introducing a liquidity risk management plan and new supervisory powers (including requiring insurers to implement measures to strengthen liquidity or temporarily stopping redemption of contracts). ### Further Integration of Financial Conglomerate Oversight - Report intragroup exposures and transactions within conglomerates on a flow and stock basis at quarterly or regular frequency; develop guidance to address direct and indirect, and common exposures of entities in the conglomerate. - Agencies: ACPR, AMF - Timing: NT - Implementation status: French conglomerates report intragroup exposures and transactions on a flow and stock basis at regular frequency (reporting CONGLOMER). An enhanced reporting is being reviewed by the Commission and should be implemented in 2023. - Develop with the ECB and other EU agencies liquidity risk management requirements and stress testing at the conglomerate level. - Agencies: ACPR, AMF - Timing: NT - Implementation status: No liquidity risk management requirement has been considered at this stage because the current supervisory framework coinciding with the prudential consolidation perimeter is deemed satisfactory. ECB judged liquidity risks not particularly high. ACPR is carrying out ad hoc research on liquidity analysis and stress testing at the conglomerate level; market-wide stress tests typically encompass conglomerates. - Strengthen conglomerate oversight and work with the Joint Committee of the ESAs to finalize common reporting templates, and with the ECB on common supervisory guidance for conglomerates. - Agencies: ACPR, AMF - Timing: NT - Implementation status: ACPR maintained high engagement; ACPR’s deputy Secretary General chairs the JC of the ESAs on common reporting templates. ACPR participates in ESA’s work on the Commission’s call for advice on digital finance and potential review of FICOD to supervise mixed-activity groups. ACPR engaged with ECB staff to develop common supervisory guidance and enhance the supervisory manual. ### Enhancing Governance, Financial Policies and Financial Integrity - The ACPR and AMF should have autonomy to determine their resource levels based on a forward-looking review of supervisory and monitoring needs. - Agencies: ACPR, AMF, MoF - Timing: I - Implementation status: NSAs are free to allocate resources toward needed fields, but cannot determine global resource levels as these are fiscal and require parliamentary decision. Parliamentary decision is informed by an independent report from the NSA. Current arrangement with a vote on a resource threshold guarantees stable funding of the NSAs. - To avoid perception of conflict of interest, the government should recuse itself from all supervisory decision-making committees at the ACPR and the AMF. - Agency: MoF - Timing: I - Implementation status: The presence of the MoF as an observer on NSAs’ boards does not prevent independent decisions. Cross participation and attendance of a MoF representative on a non-voting basis provide a legal framework for information sharing between NSAs and with the MoF. - Reduce further the spread between market interest rates and the return on regulated savings products. Ensure timely and effective implementation of CDC governance reform under the Loi PACTE and undertake a full review of regulated savings framework at the appropriate time. - Agency: MoF - Timing: NT - Implementation status: Implementation of CDC governance reform under the Loi PACTE is finished. The rate for the Livret A was reduced from 0.75% to 0.5% in February 2021. - Enhance AML/CFT supervision of smaller banks rated as high-risk. Explore ways to provide systematic guidance on detection of potential terrorist financing activities. - Agencies: ACPR, Tracfin - Timing: I - Implementation status: ACPR devised in late 2019 an AML-CFT supervisory approach (SABRE) linking supervisory intensity to individual risk assessment. SABRE provides supervisory tools from annual returns and meetings to onsite visits and inspections. Onsite visits and inspections have fully resumed after lockdowns. ACPR/TRACFIN joint Guidelines list criteria, including weak signals, that obliged entities must consider. The new Sectoral Risk Assessment published by ACPR describes risks by institution category and focuses on CFT. ### Reinforcing Crisis Management, Safety Nets, Resolution Arrangement - Work toward an enhanced resolution framework for insurers by including wider powers to restructure liabilities (bail-in), and enhanced safeguards and funding. - Agency: ACPR - Timing: MT (Medium term) - Implementation status: Authorities recognize the resolution framework would benefit from additional tools, especially bail-in powers and adequate resolution funding arrangements. In September 2021, the European Commission published a proposal of directive for a harmonized recovery and resolution regime in the EU within its Solvency II package review. The proposal foresees inclusion of a write-down or conversion tool, a solvent run-off tool, an asset and liability separation tool, a sale of business tool and a bridge undertaking tool. No funding arrangements nor harmonization of national Insurance Guarantee Schemes are foreseen in the first proposal. Authorities consider an EU Directive essential for advancing recovery and resolution in a level playing field context. - Change eligibility of the FGDR’s Supervisory Board membership (currently formed by bank executives in activity) to independent members only. - Agency: FGDR - Timing: MT - Implementation status: (No implementation detail provided in source.) - Develop modalities for providing ELA in currencies other than euros and establish general rules to assist banks in identifying assets which might be proposed as ELA collateral and buttress operational readiness to pledge them. - Agencies: BdF, ACPR - Timing: MT - Implementation status: ELA framework is decided by the Governing Council of the ECB. ECB maintained its TAF facility in some currencies. An internal TF contemplated possibilities of sourcing foreign currency for ELA purposes. Banque de France revised internal procedures and has an internal framework to determine asset types that can be pledged. ### Key Implementation Timing Legend - I = immediate (within one year) - NT = near term (1–3 years) - MT = medium term (3–5 years) - These ratings reflect the authorities’ own assessment of implementation status. *Italicized numerical and timing details preserved per source.* *Italic: Annex II. 2019 Key FSAP Recommendations—Implementation (source PDF).* ### Annex IV. Risk ### Annex IV. Risk ### Public Debt Sustainability Analysis — Key findings - France’s public debt sustainability risks increased considerably during the COVID-19 pandemic, leading to a sizable increase in the level of debt that is expected to persist. - Debt-to-GDP ratio is projected to reach about 115 percent of GDP in 2021 and to increase by another one percent of GDP over the medium-term under staff’s baseline. - Materialization of some adverse scenarios could add almost another 10 percent of GDP to public debt. - Low funding costs from accommodative monetary policy and the long average maturity of France’s sovereign debt are important mitigating factors. ### Background - Pre-pandemic: debt-to-GDP ratio oscillated around 98 percent of GDP over 2017–19, after increasing by around 33 percent of GDP between 2007 and 2016. - Interest payments reached 1.4 percent of GDP in 2019. - 2020: debt ratio increased steeply to 115 percent of GDP as output contracted by 8 percent and the fiscal deficit reached more than 9 percent of GDP. - Average yield of 10-year sovereign bonds in 2020 was negative, at -0.15 percent. ### Baseline assumptions - Fiscal baseline based on the initial 2021 budget law, the amendment voted in July 2021, and the draft 2022 budget. No offsetting measures or consolidation effort is assumed. - Real GDP growth: declines gradually from 3.7 percent in 2022 to 1.4 percent over the medium term; economy remains about 1.2 percent below the level projected before the pandemic. - Long-term interest rates (10-year sovereign bond yield) projected to gradually increase; effective interest rate projected to decline further as maturing debt is refinanced at lower rates. ### Baseline projections — fiscal and debt paths - Primary fiscal deficit: projected to reach 7.1 percent of GDP in 2021 and decline to 4.1 percent of GDP in 2022. - Improvement reflects a reduction of about 2½ percent of GDP in funding needs for emergency support schemes and the expansion in output. - Primary deficit projected to continue declining to about 2½ percent of GDP over the medium run (compared to a pre-pandemic projection of around 1.6 percent of GDP and a debt-stabilizing level of 2 percent of GDP). - Effective interest rate: expected to remain contained at around 0.9 percent on average over 2022-26. - Debt level: projected to decline from 115.1 percent of GDP in 2020 to 113.3 percent of GDP in 2022 due to favorable interest-growth differential and stock/flow adjustments (notably, withdrawal of treasury deposits built in 2020). - Over 2023-26, primary deficit contribution would more than offset favorable interest-growth dynamics and debt would increase to about 115.7 percent of GDP by 2026. - Gross financing needs: projected to gradually decline from more than 27 percent of GDP in 2021 to about 22 percent of GDP in 2026. ### Realism of projections - Median forecast error for real GDP growth during 2011–19 was -0.3 percent (upward bias in staff projections). - Median forecast error of -0.2 percent for the primary balance and -0.3 percent for inflation. - Projected adjustment and level of the cyclically-adjusted primary balance (CAPB) are below thresholds that would cast doubt on feasibility, based on high-debt country experience. - Largest projected adjustment over any three years during the projection is about 3.3 percent of GDP (slightly above the 3 percent threshold). - Maximum average level of the cyclically-adjusted primary deficit for any consecutive 3-year period reaches -2½ percent of GDP (below the 3.5 percent threshold). ### Heat map and fan chart - Risks from the debt level and gross financing needs are deemed high, as France is above the pre-COVID thresholds of 85 and 20 percent of GDP, respectively, under the baseline and all stress scenarios. - Share of public debt held by non-residents was 50 percent in 2020 (above the relevant threshold of 45 percent), having declined from a peak of 71 percent in early 2010. - High share of public and private (mainly banks) debt held by non-residents leads to high external financing requirements. - Contingent liabilities increased during the pandemic from state guarantees on bank loans. - Fan chart (no restriction on distribution of shocks): 50 percent probability of debt reaching between 108 and 120 percent of GDP by 2026. - Fan chart (upside risks constrained): 50 percent probability of debt being between 113 and 122 percent of GDP by 2026. ### Shocks and stress tests — scenarios and outcomes - Combined macro-fiscal shock (growth, public finances, interest rates): debt reaches about 124 percent of GDP in 2026 (baseline: 115.7 percent). - Standalone interest rate shock: backloaded deterioration due to maturity profile; debt about 119 percent of GDP by 2026. - Contingent liability materialization scenario: debt close to 121 percent of GDP by 2026. - Growth shock: - Real output growth in 2022-23 assumed lower than baseline by one standard deviation (computed over 2010-19, implying a shock to growth of 0.7 percentage points). - Assumes decline in inflation (0.25 percentage points per 1 percentage point decrease in GDP growth) and increase in interest rate by 25 basis points for every 1 percent of GDP worsening of primary balance. - Public debt increases to about 119 percent of GDP by 2026. - Gross financing needs over 2022-26 would be ¾ percent of GDP higher, on average, than under the baseline. - Primary balance shock: - Only half of the annual improvement in the primary balance over 2022-26 under the baseline materializes (implying deficit is 1.5 percent of GDP higher in 2022). - Interest rate assumed 25 basis points higher for each percent of GDP that the deficit worsens. - Public debt reaches about 118 percent of GDP in 2026. - Interest rate shock: - Assumes an increase in projected interest rates by of 270 basis points from 2022 onward. - Debt ratio reaches about 118 percent of GDP by 2026. - Gross financing needs would be 2.1 percent of GDP higher than under the baseline scenario by 2026. - Real exchange rate shock: - Assumes a 13 percent devaluation of the real exchange rate in 2022. - Debt and gross financing needs are very similar to baseline. - Combined macro-fiscal shock (summary): - Debt about 124 percent of GDP in 2026. - Average gross financing needs over 2022-26 about 2.4 percent of GDP higher than under the baseline. - Contingent liability shock: - Assumes about 3 percent of GDP in COVID guarantees are called (representing approximately about 50 percent of bank loans guarantees claimed to date). - Also assumes real GDP growth in 2022-23 is 0.7 percent lower than baseline. - Debt increases to around 121 percent of GDP by 2026. ### Overall risk assessment and mitigating factors - Path of public debt and gross financing needs under the baseline is subject to risks, including: - Significant envelope of public guarantees during the pandemic: guarantees for bank loans (PGE program) envelope of €300 billion (out of a total of €334 billion in guarantees made available during the pandemic). - Take-up has stabilized at much lower level, less than ½ of the total envelope; losses from guarantees being called remain contained. - Tightening financial cycle (e.g., earlier normalization of monetary conditions) could trigger contingent liabilities or require bailouts, increasing risks. - Mitigating factors: - Long average maturity of French debt (as of July-2021, average maturity of medium- and long-term outstanding debt was around 9 years). - Home bias and large institutional investor base for French sovereign debt. - Low share of debt issued in foreign currency. - Financing from the Next Generation EU Recovery Fund. *Source: 1fraea2022001 - Annex IV. Risk* ### 8. The external DSA provides a framework to examine a country’s external debt ### 8. The external DSA provides a framework to examine a country’s external debt ### Overview - The external DSA complements the External Sector Assessment (Annex I) as a framework to examine France’s external debt sustainability. - Under the baseline scenario, external debt is projected to decrease from 228 percent of GDP in 2020 to 218 percent of GDP in 2021 and then decline gradually thereafter to a level slightly above the pre-COVID ratio, helped mainly by favorable growth interest rate differentials. - France has a high level of external debt but mitigating factors include the current low cost of debt, the high amount of foreign assets, the limited share of debt in foreign currency, and a positive non-interest current account. ### Background and debt composition - External debt increased by about 30 percentage point of GDP in 2020 following the large contraction in GDP from COVID-19 and associated financing needs. - Major holders/components of external debt (shares expressed as percent of GDP): - Globally active banks: 104 percent of GDP (about half of external debt). - Government: 54 percent of GDP (about one quarter of external debt). - Intercompany loans: about 10 percent of GDP. - France holds a substantial stock of foreign assets. ### Assessment — baseline projections and drivers - Baseline external debt path (Table VI.1, baseline row for "External debt"): - 2016: 201.2 - 2017: 200.2 - 2018: 200.2 - 2019: 198.1 - 2020: 227.6 - 2021: 217.9 - 2022: 214.0 - 2023: 214.2 - 2024: 213.9 - 2025: 213.9 - 2026: 213.8 - Under the baseline scenario, external debt is projected to decline from 218 percent of GDP in 2021 to 214 percent of GDP in 2026 but remain close to pre-COVID levels. - Key contributing dynamics identified (Table VI.1 and text): - Non-interest current account surpluses in the medium term and favorable growth interest rate differentials help the gradual decline. - Contributions to automatic debt dynamics (identified flows) include: - Current account deficit, excluding interest payments (examples by year): -1.2 (2021), -0.7 (2022), -0.8 (2023), -1.0 (2024), -0.9 (2026) — as reported in the identified flows table format. - Net non-debt creating capital inflows and automatic debt dynamics contain large negative contributions in recovery years (Table VI.1 lines 8 and 9). - Nominal external interest rate (examples from key macro assumptions): 0.9 (2023), 0.9 (2024), 0.9 (2025), 0.9 (2026). - Real GDP growth assumptions (selected years): 6.7 (2021), 3.7 (2022), 1.7 (2023), 1.6 (2024), 1.5 (2025), 1.4 (2026). ### Stress tests and scenario outcomes - Historical scenario (macroeconomic variables set equal to their current negative growth averages): - External debt would steadily increase from 218 percent of GDP in 2021 to about 261 percent of GDP in 2026. - Real depreciation scenario (one-time depreciation of 30 percent in 2022): - External debt would rise to 245 percent of GDP and reach 249 percent of GDP by 2026. - Other vulnerabilities and shock sensitivities: - External debt is more vulnerable to a real depreciation and, to some extent, the growth shock. - The effect of an interest shock as well as a non-interest current account shock would be small. - Stress-test summary figures (selected averages shown in Figure VI.6 boxes): - Baseline average shown as 214 (external debt percent of GDP). - Historical scenario average shown as 261 (external debt percent of GDP). - Real depreciation (30% depreciation) scenario result shown as 249 (external debt percent of GDP). - Growth shock scenario outcome shown as 231 (external debt percent of GDP). - Robustness: - The path of external debt is described as robust to standard stress test scenarios except under the historical-average negative-growth scenario and a large real depreciation. ### Key statistics and financing metrics - External debt-to-exports ratio (from Table VI.1, selected context): values reported show very high ratios, e.g., 637.4 (2016) and series declining to 635.0 (2026) as presented. - Gross external financing need (in billions of US dollars), selected values (Table VI.1): 1,904.0 (2016), 2,069.6 (2017), 1,233.3 (2018), 2,238.7 (2019), 2,434.1 (2020), 2,848.9 (2021), 3,009.7 (2022), 3,097.4 (2023), 2,323.0 (2024), 3,352.7 (2025), 3,478.9 (2026). - Change in external debt (Table VI.1, line 2): notable changes include +29.6 (2020) and -9.8 (2021) (in percent of GDP for the respective year-to-year change). ### Implications and cautionary points - While France’s external debt is judged sustainable over the medium term under the baseline, significant tail risks remain if adverse macro outcomes materialize (notably prolonged weak growth or large real depreciation). - Mitigating factors supporting sustainability include: - Current low cost of debt. - High stock of foreign assets. - Limited share of debt in foreign currency. - Positive non-interest current account. *Source: IMF staff report material in "8. The external DSA provides a framework to examine a country’s external debt" (France), extracted from the provided chapter content.* ### 1. The latest high frequency indicators point to the continued resilience of ### 1. The latest high frequency indicators point to the continued resilience of ### Economic activity and inflation - Banque de France’s business confidence survey carried out between December 20 th and January 6 th suggests that economic activity is holding up well overall, with GDP estimated to be slightly above the pre-crisis level in December. - Recruitment difficulties remain significant, with some easing of supply difficulties experienced by firms. - In December, the harmonized index of consumer prices rose by 3.4 percent year on year, similar to the previous month, suggesting that inflation may be close to its peak with transitory factors likely dissipating during the course of 2022, as expected by staff. ### Covid-19 epidemiological situation - The incidence of Covid-19 infections escalated substantially in France due to the rapid spread of the Omicron variant. - France recorded more than 300,000 daily new infections since end-December—the highest reported in the country since the pandemic began. - As of January 10, the rolling 7 day infection rate reached 4,000 per million, double the EU average. - The positivity rate increased from about 5 percent in mid-December to 18 percent. - Hospital admissions have been rising in all regions, but intensive care admissions remain stable so far. ### Containment measures and economic impact - Selective containment measures implemented include: - compulsory teleworking for a minimum of three days per week, - limitations on public gatherings, - extended closures of nightclubs, - international travel restrictions, - mandatory mask wearing in outdoor and indoor venues, - amendment of the health pass to require proof of vaccination and not just a negative test. - Staff expects the infection spread and associated restrictions to have a negative impact on economic activity, with affected sectors (such as accommodation, catering) experiencing a likely decline in activity during the first quarter of 2022. - This would result in lower growth for 2022, by about 0.2 percentage point, compared to staff’s previous projections. ### Targeted fiscal and support measures - Authorities announced targeted additional support to offset the economic impact of containment measures for largely affected sectors. - Adjustments to existing programs include: - replacement rate of the short-time work scheme (activité partielle) for firms affected by containment measures increased to 100 percent (without the need to justify a turnover loss of 65 percent), - access to a transfer program to cover fixed costs (dispositif de prise en charge des coûts fixes) for firms in selected activities (e.g., events) extended to the entire tourism sector, and the turnover loss threshold reduced from 65 percent to 50 percent. - The cost of these extensions is expected to remain limited and to be covered within already approved envelopes for these programs. - New measures to support industrial firms suffering from supply difficulties include long-term lending for firms to bolster their working capital through the state investment bank Bpifrance. *1fraea2022001 - 1. The latest high frequency indicators point to the continued resilience of* ### 5. A new organic law on public finances, adopted on December 28, 2021, ### 5. A new organic law on public finances, adopted on December 28, 2021 ### New organic law: scope and governance changes - Enhanced scope of what should be included in the programming bills, which set medium-term objectives for public finances. - Programming bills will include, for each year within the multi-year programming horizon: - a target for real expenditure of the general government, as well as for each sublevel, and - the corresponding projection in nominal terms. - Requirement for the government to present, at each budgetary cycle: - a report on public debt (including a debt sustainability analysis), and - a report on deviations of nominal spending of public administrations between projections in the programming bill and actual outturns reported in the budget laws. - Expanded competencies for the Fiscal Council (HCFP) to provide assessments of these additional dimensions, including on corrective actions envisaged by the government in the case of important deviations with respect to the multi-year targets. ### Key economic indicators (selected figures from Table 1: France: Selected Economic Indicators, 2019-22) - Real economy (change in percent) - Real GDP: 1.8, -8.0, 6.7, 3.5 (for 2019, 2020, 2021, 2022 projections) - Domestic demand: 2.1, -6.8, 6.1, 2.5 - Foreign balance (contr. to GDP growth): -0.3, -1.1, 0.4, 0.9 - CPI (year average): 1.3, 0.5, 2.1, 2.4 - GDP deflator: 1.3, 2.7, 0.2, 2.0 - Public finance (percent of GDP) - General government balance: -3.1, -9.2, -8.3, -5.2 - Revenue: 52.3, 52.6, 52.0, 51.2 - Expenditure: 55.4, 61.8, 60.3, 56.4 - Primary balance: -1.7, -8.0, -7.1, -4.2 - Structural balance (percent of pot. GDP): -2.1, -6.0, -7.0, -5.0 - General government gross debt: 97.5, 115.0, 114.6, 113.5 - Labor market (percent change) - Employment: 0.8, -0.7, 1.2, 0.2 - Labor force: 0.2, -1.1, 1.2, 0.3 - Unemployment rate (percent): 8.4, 8.0, 8.0, 8.1 - Credit and interest rates (percent) - Growth of credit to the private non-financial sector: 5.3, 8.1, 2.5, 3.8 - Money market rate (Euro area): -0.4, ..., ..., ... - Government bond yield, 10-year: 0.1, ..., ..., ... - Balance of payments (percent of GDP) - Current account: -0.3, -1.9, -1.4, -1.4 - Trade balance of goods and services: -0.9, -1.9, -1.6, -1.4 - Exports of goods and services: 32.7, 28.8, 31.7, 33.8 - Imports of goods and services: -33.7, -30.7, -33.3, -35.2 - FDI (net): 0.2, 1.6, 0.8, 0.9 - Official reserves (US$ billion): 69.7, ..., ..., ... - Exchange rates - Euro per U.S. dollar, period average: 0.89, ..., ..., ... - NEER, ULC-styled (2005=100, +=appreciation): 97.1, ..., ..., ... - REER, ULC-based (2005=100, +=appreciation): 90.2, ..., ..., ... - Potential output and output gap - Potential output (change in percent): 1.0, -3.3, 3.7, 1.7 - Memo: per working age person: 1.2, -3.2, 3.8, 1.7 - Output gap: 0.0, -4.8, -2.1, -0.4 ### Recent developments, outlook, and risks - Health and vaccination - As of January 9: 77 % of the total population and 91 % of the adult population fully vaccinated. - All children between 5 and 11 years can receive a vaccine since December 28. - As of December 28, booster can be given to all adults as soon as 3 months after last injection (Pfizer-BioNTech, Moderna or AstraZeneca) and 4 weeks after single Janssen injection. - As of January 9, 53% of the adult population has received a booster shot. - France committed to donate 120 million doses by the end of first-half 2022; 28.9 million doses delivered as of December 10. - Economic rebound and labor market - Government official GDP growth forecast: 6 ¼ percent for 2021 in revised budget bill for 2022 and draft budgetary plan submitted to the European Commission in October. - French economy regained its pre-crisis level by summer 2021, faster than the euro area average. - Investment exceeded its pre-crisis level by Q1 2021 for businesses. - Household consumption rebound gained steam in Q3 2021. - Salaried employment exceeded pre-crisis level by +1.0% in Q3 2021. - Employment rate in Q3 2021: 67.5%; labor force participation rate: 73.5%. - Youth employment rate in Q3 2021: +2.9 pp higher than before the crisis (+0.7 pp for those aged between 15-64). - Unemployment rate decreased to 8.1% in Q3 2021. - Unemployment halo in Q3 2021: 4.4% (or -0.3 point compared to pre-crisis level). - Inflation - Inflation evolution (year-on-year, INSEE): +0.0% in December 2020; +1.5% in June 2021; +1.9% in August 2021; +2.8% in November and December 2021 (first estimate for the latter). - Peak of inflation likely at end 2021 or beginning 2022; inflation expected to fall back below 2 % by end 2022 according to authorities. - Recent inflation supported by base effects and higher energy prices (petroleum products and gas); delayed pass-through from raw materials, inputs and freight expected to support some components of inflation for some time. - Risks and uncertainties - Omicron wave and the still-active Delta wave increase uncertainty. - Supply-chain disruptions monitored but expected to gradually dissipate over the course of the year. - Recovery of net exports could be more dynamic than staff expected. - Faster than expected rundown of accumulated private savings could raise near-term growth. ### Fiscal policies and measures - Authorities view the moderately expansionary fiscal stance in the 2022 budget as appropriate. - Targeted temporary measures announced on January 3 to support businesses impacted by new health restrictions: - Extension of short-time work scheme fully covered by the State until end of January for firms incurring large losses in sectors directly impacted. - New financial aid for companies closed to the public. - Extended and simplified coverage of fixed costs. - Relaxed conditions for reimbursement of State-guaranteed loans for very small enterprises with liquidity difficulties. - Measures to respond to rising energy prices and protect vulnerable households: - Energy vouchers increased by 100 €. - Gas prices frozen from October 2021 until the end of 2022. - Increase in regulated electricity tariffs limited to +4% in February 2022. - One-off "inflation allowance" of €100 granted to people earning below 2000 € in monthly net income. - These measures are temporary and intended to limit impact on low-income households while remaining consistent with greening objectives. - Medium-term fiscal strategy - Government committed to maintaining sustainability of public finances. - Fiscal trajectory based on containing real government expenditure growth at 0.7% per year. - Authorities aim to stabilize public debt and get it on a declining path by 2026 by boosting potential growth factors, improving spending efficiency and controlling government expenditure. - Further adjustment should stem from expenditures in line with government strategy to reduce the tax burden. - Recent institutional reforms (organic law) - Organic law modernizing governance of public finances published in the Official gazette on December 29. - Three main pillars: - Reinforce multi-year budget framework, with an expenditure rule set in volume and derived in value (in billion euros) and an obligation for the Government to justify potential deviations in a public report. - Strengthen competencies of the fiscal council to provide views on realism of public finances forecasts, detect potential biases, and give opinion on compatibility of sectoral programming laws with the programming finance law. - Strengthen the role of Parliament in the budget process, including enhanced reporting and Parliamentary debate on public debt, its trajectory, financing conditions and sustainability. ### Financial sector resilience and policy actions - Banks entered the crisis with comfortable capital and liquid buffers, which improved through mid-2021. - Increase in NPL contained overall; moderate increase in assets classified as stage 2 under IFRS reflects cautious assessment and rescheduling in acute phase of crisis. - Macroprudential measures and household debt: - High Council for Financial Stability (HCSF) measures on home loans made binding in September 2021: - Borrower effort rate should not exceed 35% of income. - Maturity of loans should not exceed 25 years (except in special cases). - Majority of real estate loans in French market are long-term fixed rate. - Measures halted drift in lending conditions without slowing real estate market or limiting credit distribution. - Proportion of loans with high effort rate or high maturity has fallen and is now very close to planned flexibility margin. - Housing price growth stayed moderate since early 2020, below euro area average. - Countercyclical buffer - HCSF in December 2021 considered that economic and financial situation justifies imminent normalization of the countercyclical buffer and plans normalization to its pre-crisis level at its next meeting, provided cycle confirms capacity of banking system to support growth. - AML/CFT - FATF's fourth mutual evaluation of France is in progress; final report to be adopted at plenary session on March 3, 2022. ### Structural reforms and the green transition - Labor market reforms since 2017 contributed to dynamic labor market and strong employment recovery in 2021: - Simpler labor code, conversion of CICE into permanent cuts in employer contributions, strengthening of broad-based contribution relief as of Oct. 1, 2019. - Investments in trainings, skills and career transitions. - Significant reform of unemployment benefit system strengthening work incentives completed in late 2021. - Education measures to enhance equal opportunities. - Number of apprenticeship contracts signed in 2020: more than 525,000 (up by more than 40% over previous year). - Climate objectives and green investments - France’s total greenhouse gas emissions in 2019 represented a 17.7% percent decline from 1990 levels. - Average effective carbon rate in France amounted to 93.1 EUR/tCO2 in 2021 (OECD), ranking third across G20 economies. - Carbon neutrality target: 2050. - "France Relance" plan devotes €30 billion over 3 years to the climate transition through support for green investments, decarbonization and R&D. - Climate and Resilience Act adopted in August 2021 to support structural changes in consumer behavior and mobilize stakeholders around greening objectives. - Revision of national low-carbon strategy and France's multi-year energy plan scheduled for 2023. - National and European sustainable finance initiatives (taxonomy, extra-financial reporting, ecolabelling) to direct financial flows toward low-carbon investments. - "France 2030" plan (industrial competitiveness and innovation with green focus) - €30 billion in budget funds and €4 billion in equity investments over 5 years. - Allocation highlights: - €8 billion for clean energy (develop small scale nuclear reactors, green hydrogen, decarbonize France’s industry) - €4 billion for future transport (electric and hybrid vehicles, low-carbon aircraft) - €2 billion for the food sector - €3 billion for the health sector - €2 billion for space and seabed - Additional investments in skills are foreseen. *Source: Statement by Mr. Buissé, Mr. Roman and Mr. Grossmann-Wirth on France, Executive Board Meeting, January 19, 2022, and Table 1 (France: Selected Economic Indicators, 2019-22).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1fraea2022001.pdf_