## 1fraea2026001 - 5.1 percent of GDP—below the initial budget target—reflecting proactive spending management. The

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### Context and recent developments
- Growth and demand:
  - Real GDP growth in 2025: 0.9 percent (down from 1.4 percent in 2024).
  - Domestic demand (excluding inventories) contribution to growth in 2025: 0.6 percentage points.
  - Private consumption: slowed; household savings rate peaked at 18 percent in mid-2025.
  - Private investment: turned positive in 2025 and supported inventory buildup in specific sectors.
  - Sectoral performance: gains in services (notably ICT and professional services) and aeronautics and other defense-related manufacturing; weaker investment in construction and other manufacturing.
  - Net foreign balance: negatively impacted growth in 2025 due to suppliers’ backlogs in the aeronautics sector causing export delays and import build-up.
- Early 2026 indicators:
  - Real GDP: declined by 0.1 (q-o-q) in Q1 2026.
  - Industrial production: grew by 0.3 percent in April 2026 (month-on-month), from 1.4 percent in March 2026.
  - Headline HICP inflation: 2.8 percent y-o-y in May 2026.
  - Services inflation: 2.1 percent in May 2026.
  - One year-ahead inflation expectations: around 2.5 percent as of June 2026.
  - Three-to-five-year inflation expectations: stable at 2 percent.
  - High-frequency indicators: point to weaker growth prospects in Q2 2026, with business sentiment slowing in services and construction and manufacturing losing momentum.
- Labor market developments:
  - Labor force participation: historic high of 75.6 percent in 2026Q1.
  - Unemployment rate: rose to 8.1 percent in 2026Q1 from 7.7 percent in 2025.
  - Full Employment Act (implemented 2025): estimated to have raised recipients’ labor force participation and temporarily increased unemployment by about 0.2 percentage points since implementation (INSEE).
  - Employment: began to ease in second half of 2025, driven by weaker employment among younger workers after reduced apprenticeship support.
  - Labor productivity: rose by 1.5 percent in 2025.

### Outlook and risks
- Growth projections:
  - Real GDP: 2026 projection 0.6 percent; 2027 projection 0.9 percent; 2028 projection 1.2 percent.
  - Domestic demand growth projections: 2026: 0.4 percent; 2027: 0.6 percent; 2028: 1.1 percent.
  - Foreign balance (contribution to GDP growth) projections: 2026: 0.2; 2027: 0.3; 2028: 0.1.
- Inflation and price measures:
  - CPI (year average) projections: 2026: 2.3; 2027: 1.7; 2028: 1.9.
  - GDP deflator projections: 2026: 1.5; 2027: 1.7; 2028: 1.9.
- Downside risks highlighted:
  - Rising geoeconomic tensions, including in the Middle East.
  - Potential for a disorderly AI correction.
  - Heightened political uncertainty ahead of the presidential elections planned for early 2027.
  - Prolonged energy supply disruptions in the Middle East.
- Upside scenario:
  - Easing geoeconomic tensions and renewed political consensus around ambitious structural reforms—supported by faster digitalization and deeper EU coordination—could boost confidence, investment, and overall growth.

### Public finance and fiscal outlook
- Key fiscal indicators (percent of GDP):
  - General government balance: 2025: -5.1; 2026: -5.2; 2027: -4.9; 2028: -4.5.
  - Revenue: 2025: 52.2; 2026: 52.4; 2027: 52.5; 2028: 52.6.
  - Expenditure: 2025: 57.3; 2026: 57.6; 2027: 57.4; 2028: 57.1.
  - Primary balance: 2025: -3.0; 2026: -2.7; 2027: -2.3; 2028: -1.7.
  - Structural balance (percent of pot. GDP): 2025: -5.1; 2026: -5.0; 2027: -4.7; 2028: -4.3.
  - General government gross debt: 2025: 115.7; 2026: 118.5; 2027: 120.3; 2028: 121.1.
- Fiscal stance and recent measures:
  - 2025 fiscal deficit: declined to 5.1 percent of GDP in 2025, below the initial target of 5.4 percent.
  - Public debt: increased to 115.7 percent of GDP in 2025.
  - 2026 budget: structural primary adjustment of about 0.5 percent of GDP; leaves the deficit at 5 percent of GDP, short of the 4.6 percent target in the MTFSP.
  - Adjustment composition in 2026 budget: 0.4 percent of GDP in revenue measures and 0.6 percent of GDP in gross spending cuts across the state.
  - Government adopted a €6 billion savings package (about 0.2 percent of GDP) to offset the macroeconomic and interest-rate impact of the Middle East shock.
  - Absent further measures, staff baseline projects fiscal deficit at 5.2 percent of GDP in 2026.
  - Staff baseline projection for 2027–29: fiscal deficit projected to decline only gradually and remain elevated at 3.5 percent of GDP in the medium term; public debt rises to nearly 122 percent of GDP by 2030 before starting to stabilize.
  - Staff debt distress risk assessment: moderate (Annex VI).

### Fiscal strategy and staff recommendations
- Authorities’ commitment:
  - Bring the fiscal deficit below 3 percent of GDP by 2029 (MTFSP objective).
- Staff view and recommended path:
  - Consolidation remains slower than planned; current pace insufficient to meet MTFSP objectives absent further measures.
  - Recommended frontloaded fiscal effort: about 0.8 percent of GDP per year over 2027–29, broadly consistent with the authorities’ MTFSP.
  - Fiscal response to the energy shock: appropriate to date; should remain limited, temporary, and targeted to the most vulnerable, while preserving market incentives and containing fiscal costs.
  - Need for an updated, clearly specified multi-year strategy anchored by a medium-term package of high-quality fiscal measures and reforms to reprioritize spending, improve efficiency, address aging pressures, and preserve room for priority needs.
  - Emphasis on contingency planning and protecting the most vulnerable if measures are well targeted and complemented by growth-enhancing structural reforms.

### Multi‑annual fiscal scenarios (IMF staff estimates, percent of GDP unless noted)
- Baseline scenario (series by year: 2025, 2026, 2027, 2028, 2029, 2030, 2031)
  - Real GDP growth (percent): 0.9, 0.6, 0.9, 1.2, 1.1, 1.1, 1.1
  - Revenue: 52.2, 52.4, 52.5, 52.6, 52.7, 52.8, 52.9
  - Expenditure: 57.3, 57.6, 57.4, 57.1, 56.7, 56.6, 56.4
  - Overall balance: -5.1, -5.2, -4.9, -4.5, -4.1, -3.8, -3.5
  - Primary balance: -3.0, -2.7, -2.3, -1.7, -1.1, -0.6, 0.0
  - Fiscal effort 1/: 0.9, 0.5, 0.5, 0.5, 0.5, 0.5, 0.5
  - Legislated measures: 0.5, 0.1, 0.2, 0.2, 0.2, 0.2, 0.2
  - Planned measures, not yet legislated: 0.0, 0.3, 0.4, 0.4, 0.3, 0.3
  - Public debt: 115.7, 118.5, 120.3, 121.1, 121.6, 121.8, 121.8
- Recommended scenario
  - Real GDP growth (percent): 0.9, 0.6, 0.9, 1.2, 1.2, 1.1, 1.1
  - Revenue: 52.2, 52.4, 52.5, 52.6, 52.7, 52.8, 52.9
  - Expenditure: 57.3, 57.3, 56.7, 56.0, 55.4, 55.1, 54.8
  - Overall balance: -5.1, -4.9, -4.2, -3.4, -2.8, -2.3, -1.8
  - Primary balance: -3.0, -2.4, -1.6, -0.6, 0.1, 0.8, 1.4
  - Fiscal effort 1/: 0.9, 0.8, 0.8, 0.9, 0.7, 0.6, 0.6
  - Public debt: 115.7, 118.1, 119.2, 119.0, 118.1, 117.0, 115.5
- Recommended with structural reforms 2/
  - Real GDP growth (percent): 0.9, 0.6, 1.0, 1.4, 1.4, 1.3, 1.3
  - Revenue: 52.2, 52.4, 52.5, 52.6, 52.7, 52.8, 53.0
  - Expenditure: 57.3, 57.3, 56.7, 55.9, 55.3, 54.9, 54.6
  - Overall balance: -5.1, -4.9, -4.2, -3.3, -2.6, -2.1, -1.6
  - Primary balance: -3.0, -2.4, -1.6, -0.5, 0.3, 0.9, 1.6
  - Fiscal effort 1/: 0.9, 0.8, 0.8, 0.8, 0.7, 0.5, 0.5
  - Public debt: 115.7, 118.1, 119.1, 118.5, 117.3, 115.7, 113.9
- Notes:
  - 1/ Computed as the change in the structural primary balance.
  - 2/ Under the recommended scenario with structural reforms, policies are expected to contribute 0.1 to TFP growth in 2027 and 0.2 onwards.

### Revenue constraints and recommendations
- Revenue context:
  - Revenue-to-GDP ratio in 2025: 52.2 percent (among the highest in the euro area).
  - Consolidation in 2025–26 relied largely on temporary revenue measures, notably higher corporate taxation.
  - Continued reliance on tax increases judged neither feasible nor desirable.
- Recommended revenue priorities:
  - Reduce tax loopholes.
  - Eliminate inefficient tax expenditures.
  - Address distortions in the taxation of capital income.
  - Strengthen compliance and fairness.
  - Reforms enhancing revenue administration: comprehensive anti-fraud law; rollout of mandatory e-invoicing from September 2026.

### Spending pressures, reprioritization and major priorities
- Overall public spending: 57.3 percent of GDP in 2025 (highest in the euro area), largely reflecting elevated current spending.
- Key spending pressures and figures:
  - Population aging: age-related spending exceeded 40 percent of total public spending in 2023, up from 29 percent in 1998.
  - Demographic pressures projection: could raise public expenditure to 60.8 percent of GDP by 2070, nearly 4 percentage points above its current level (Court of Auditors, 2025).
  - PPE3 investment needs: calls for an additional €   billion (0.6 percent of GDP) in annual investments (text preserved verbatim).
  - Electrification Plan target: doubling of annual public support to €10 billion by 2030.
  - Defense: NATO core military spending commitments of 3.5 percent of GDP by 2035—up from 2.1 percent in 2025; government updated 2024–30 military programming law adding €36 billion to existing plan.
- Recommendations:
  - Rationalize inefficient spending; reallocate current and social spending towards priority areas; preserve equity and protect the most vulnerable.
  - Implement spending reviews across central, social security and local government levels; enhance investment efficiency and reduce overlaps.

### Labor market, social protection and pensions
- Labor market priorities:
  - Strengthen work incentives; foster longer and less fragmented careers.
  - Support female labor force participation; better integrate migrants.
  - Skills development aligned with AI and digital demands; ease bottlenecks and support labor mobility.
- Unemployment benefits:
  - Benefits relatively generous for certain groups; recent bill to reduce unemployment benefits duration by mutual agreement.
  - Ongoing efforts to establish a unified social allowance by 2030 (merging RSA, prime d’activité, and housing allowances).
  - Further refinements warranted on eligibility, duration, conditionality; better alignment with active labor market policies.
- Pensions:
  - Pension spending about 14 percent of GDP (EU average 11.5 percent).
  - Suspension of 2023 pension reform froze retirement age to 62 years and 9 months until January 1, 2028, reducing expected savings by €0.4 billion in 2026 and €1.8 billion in 2027 (¶13).
  - Staff simulations: planned increase of retirement age to 64 (as envisaged in 2023 reform) will reduce the pension deficit by about 1 percent of GDP by 2070.
  - Demographic projections: share of population aged 65 and over projected to rise from nearly 22 percent in 2024 to about 30 percent by 2070 (Court of Auditors).
  - Under staff baseline: pension balance would shift from near balance to deficit of about 2.6 percent of GDP by 2070; adverse scenario could widen deficit to around 4.6 percent of GDP.

### Financial sector and stability assessment
- Banking sector and credit:
  - Banking sector: remained resilient; stronger income performance, solid buffers, and low credit risk.
  - Growth of credit to the private non-financial sector: 2025: 1.2 percent; 2026: 1.0 percent; 2027: 1.5 percent; 2028: 1.8 percent.
  - Money market rate (Euro area): 2025: 2.2 percent.
  - Government bond yield, 10-year: 2025: 3.4 percent.
  - Household lending: rose by 0.7 percent (y-o-y, end-of period) since 2025, reflecting weak mortgage activity.
  - NFC credit growth: 2.5 percent (y-o-y, end-of-period) in 2026Q1 (up from 1.9 percent in 2024).
- Financial vulnerabilities and metrics:
  - Liquidity Coverage Ratio (2025Q4): "143.4 percent".
  - Net Stable Funding Ratio (2025Q4): "115 percent".
  - French consolidated NFC debt: "74.7 percent of GDP".
  - Debt service-to-gross income ratio (NFCs): "around 45".
  - NFC NPLs: "around 2 percent".
  - NPLs in the real estate sector: "3.1 percent".
  - Household debt: "about 60 percent of GDP in 2025".
  - Average DSTI on new loans: "nearly 31 percent as of end-2025" (regulatory cap 35 percent).
  - Household NPLs: "2.2 percent".
  - Banks’ holdings of domestic sovereign debt: "only about 10 percent of domestic sovereign bonds held by major banks—less than 0.6 percent of total assets—marked to market."
- Macroprudential and supervisory priorities:
  - Countercyclical capital buffer (CCyB): "currently at 1 percent".
  - HCSF: broadened objectives; recommended ensuring operational independence and legal powers.
  - Deepen supervisors’ understanding of risks from investment funds and broader financial sector linkages (in line with 2025 FSAP recommendations).
  - Strengthen cyber preparedness; implement DORA; improve interagency coordination and TLPT arrangements.
  - Ongoing system-wide stress test (June 2026 Interim Report) to deepen understanding of investment fund risks and inform cross-border data needs.

### External position and international accounts
- Current account and trade:
  - Current account: 2023: -1.0; 2024: 0.1; 2025: -0.3; 2026: -0.8; 2027: -0.4; 2028: -0.2 (percent of GDP series).
  - Trade balance of goods and services: 2023: -1.4; 2024: -0.1; 2025: -0.2; 2026: -0.6; 2027: -0.2; 2028: 0.0.
  - Exports of goods and services: 2023: 34.4; 2024: 33.7; 2025: 33.5; 2026: 32.8; 2027: 33.0; 2028: 32.9.
  - Imports of goods and services: 2023: -35.7; 2024: -33.8; 2025: -33.7; 2026: -33.5; 2027: -33.3; 2028: -32.9.
- External liabilities and NIIP (2025):
  - NIIP: −28.4 percent of GDP.
  - Gross Assets: 384 percent of GDP.
  - Debt Assets: 213 percent of GDP.
  - Gross Liabilities: 412 percent of GDP.
  - Debt Liabilities: 241 percent of GDP.
  - External debt: about 241 percent of GDP (56 percent accounted for by banks and 30 percent by the public sector) in 2025.
  - Average TARGET2 balance in 2025: € -198.0 billion.
- REER and competitiveness:
  - 2025 CPI-based REER: remained flat.
  - ULC-based REER: appreciated by 3 percent in 2025.
  - As of March 2026, CPI-based REER was 0.3 percent below the 2025 average.
  - As of February 2026, ULC-based REER was 2 percent above the 2025 average.
  - Staff assesses REER gap at 2.0 percent with a range of ± 1.4 percent; elasticity used: 0.27.

### Key quantitative indicators (selected rows)
- Real Economy (change in percent):
  - Real GDP: 2023: 1.9; 2024: 1.4; 2025: 0.9; 2026: 0.6; 2027: 0.9; 2028: 1.2.
  - Domestic demand: 2023: 1.0; 2024: 0.2; 2025: 1.0; 2026: 0.4; 2027: 0.6; 2028: 1.1.
  - Foreign balance (contr. to GDP growth): 2023: 0.9; 2024: 1.2; 2025: -0.2; 2026: 0.2; 2027: 0.3; 2028: 0.1.
- Labor Market:
  - Employment: 2023: 1.1; 2024: 1.3; 2025: 0.9; 2026: -0.1; 2027: 0.3; 2028: 0.5.
  - Labor force: 2023: 1.1; 2024: 1.3; 2025: 1.2; 2026: 0.5; 2027: 0.1; 2028: 0.3.
  - Unemployment rate (percent): 2023: 7.3; 2024: 7.5; 2025: 7.7; 2026: 8.2; 2027: 8.0; 2028: 7.8.
- Balance of Payments (percent of GDP):
  - Current account: 2023: -1.0; 2024: 0.1; 2025: -0.3; 2026: -0.8; 2027: -0.4; 2028: -0.2.
  - FDI (net): 2023: 1.7; 2024: -0.3; 2025: 0.2; 2026: 0.6; 2027: 0.6; 2028: 0.6.
  - Official reserves (US$ billion): 2023: 79.2; 2024: 78.4; 2025: 86.0.
- Potential output and output gap:
  - Potential output (change in percent): 2023: 1.4; 2024: 1.3; 2025: 0.8; 2026: 0.9; 2027: 0.9; 2028: 1.0.
  - Memo: per working age person: 2023: 1.1; 2024: 0.8; 2025: 0.2; 2026: 0.6; 2027: 0.7; 2028: 0.9.
  - Output gap: 2023: -0.3; 2024: -0.2; 2025: -0.2; 2026: -0.4; 2027: -0.4; 2028: -0.3.

### Risk assessment and policy responses (selected)
- Conjunctural risks (likelihood / impact / policy response):
  - Geopolitical and Trade Tensions: Likelihood: High; Impact if Realized: Medium/High; Policy Response: diversify supply chains, deepen European single market, structural reforms.
  - Commodity Price Volatility: Likelihood: High; Impact if Realized: Medium/High; Policy Response: diversify energy mix, accelerate grid investment, targeted temporary fiscal measures.
  - Disorderly AI Correction: Likelihood: High; Impact if Realized: Medium; Policy Response: analyze financial sector interconnections, deepen supervision of investment funds.
  - Fiscal Vulnerabilities and Higher Interest Rates: Likelihood: High; Impact if Realized: Medium; Policy Response: advance fiscal consolidation with high-quality measures; structural reforms.
- Domestic risks:
  - Domestic Policy Uncertainty: Likelihood: High; Impact if Realized: Medium/High; Policy Response: promote broad-based political support for fiscal plans and reforms.
  - Social Discontent: Likelihood: Medium; Impact if Realized: Medium; Policy Response: advance structural reform agenda and provide targeted support to vulnerable groups.
- Structural risks:
  - Cyberthreats: Likelihood: High; Impact if Realized: Medium/High; Policy Response: strengthen crisis preparedness and operational resilience.
  - Climate Change: Likelihood: Medium; Impact if Realized: Medium; Policy Response: targeted public investment for adaptation and preparedness.
  - AI Acceleration: Likelihood: Medium; Impact if Realized: Medium; Policy Response: promote AI adoption and strengthen labor market preparedness.

### Executive Board and staff assessment
- Executive Directors’ views:
  - Agreed with thrust of staff appraisal; welcomed France’s resilience despite external shocks and domestic policy uncertainty.
  - Encouraged authorities to press ahead with fiscal consolidation while pursuing ambitious structural reforms to unlock potential and support durable, inclusive growth.
  - Highlighted need for credible, growth-friendly, and expenditure-led fiscal consolidation to bring the deficit below 3 percent of GDP by 2029 and durably entrench debt sustainability.
  - Considered 2025 fiscal overperformance welcome and response to the energy shock appropriate; further measures should remain limited, temporary, and targeted to the most vulnerable while preserving market incentives and containing fiscal costs.
  - Emphasized anchoring fiscal adjustment in a clearly specified multi-year strategy of high-quality measures and structural reforms to reprioritize spending, improve efficiency, address aging pressures, and preserve room for priority needs.
  - Stressed robust contingency planning and importance of domestic and EU-level reforms to strengthen resilience and growth.
- Commendations:
  - Directors commended France’s leadership in multilateral cooperation on global challenges related to debt, climate, and global imbalances and through official development assistance.

### Data, governance and procedural notes
- Data adequacy:
  - Staff assess overall data quality as adequate for Fund surveillance; France adheres to SDDS Plus since February 2015.
- Fiscal governance steps:
  - Public Finance Alert Committee established; actions include cancelling 3.1 billion in credits (April) and €1.7 billion (June).
  - Circle of Forecasters meets regularly; enhanced role for High Council for Public Finances (HCFP).
  - Transparency measures in 2026 budget: section on uncertainty with a fan chart; publications on fiscal forecasting and budget execution; preparation of a 2050 Public Finance Outlook.

### Selected specific numeric highlights (preserved exactly)
- Fiscal deficit 2025: 5.1 percent of GDP (target 5.4 percent).
- IMF 2025 recommended fiscal structural primary effort: 0.9 percent per year over 2026-2030.
- Public debt 2025: 115.7 percent of GDP.
- NIIP 2025: −28.4 percent of GDP.
- Gross Assets 2025: 384 percent of GDP.
- Gross Liab. 2025: 412 percent of GDP.
- Debt Liab. 2025: 241 percent of GDP.
- Average TARGET2 balance 2025: € -198.0 billion.
- CPI-based HICP inflation May 2026: 2.8 percent y-o-y.
- Labor force participation 2026Q1: 75.6 percent.
- Unemployment rate 2026Q1: 8.1 percent.
- Liquidity Coverage Ratio 2025Q4: "143.4 percent".
- Net Stable Funding Ratio 2025Q4: "115 percent".
- Household savings rate peak mid-2025: 18 percent.

*Source: FRANCE STAFF REPORT FOR THE 2026 ARTICLE IV CONSULTATION (selected excerpts).*

### 5.1 percent of GDP—below the initial budget target—reflecting proactive spending management. The

### 1fraea2026001 - 5.1 percent of GDP—below the initial budget target—reflecting proactive spending management. The

### Context and recent developments
- 2025 growth and resilience:
  - Real GDP growth in 2025: 0.9 percent (down from 1.4 percent in 2024).
  - Domestic demand (excluding inventories) contributed 0.6 percentage points to growth in 2025.
  - Private consumption slowed; household savings rate peaked at 18 percent in mid-2025.
  - Private investment turned positive in 2025 and supported inventory buildup in specific sectors.
  - Sectoral performance: gains in services (notably ICT and professional services) and aeronautics and other defense-related manufacturing; weaker investment in construction and other manufacturing.
  - Net foreign balance negatively impacted growth in 2025 due to suppliers’ backlogs in the aeronautics sector causing export delays and import build-up.

- Early 2026 indicators:
  - Real GDP: declined by 0.1 (q-o-q) in Q1 2026.
  - Industrial production: grew by 0.3 percent in April 2026 (month-on-month), from 1.4 percent in March 2026.
  - Headline HICP inflation: 2.8 percent y-o-y in May 2026.
  - Services inflation: 2.1 percent in May 2026.
  - One year-ahead inflation expectations: around 2.5 percent as of June 2026.
  - Three-to-five-year inflation expectations: stable at 2 percent.
  - High-frequency indicators point to weaker growth prospects in Q2 2026, with business sentiment slowing in services and construction and manufacturing losing momentum.

### Outlook and risks
- Growth projections:
  - Real GDP: 2026 projection 0.6 percent (slowing from 0.9 percent in 2025); 2027 projection 0.9 percent; 2028 projection 1.2 percent.
  - Domestic demand growth projections: 2026: 0.4 percent; 2027: 0.6 percent; 2028: 1.1 percent.
  - Foreign balance (contribution to GDP growth) projections: 2026: 0.2; 2027: 0.3; 2028: 0.1.

- Inflation and price measures:
  - CPI (year average) projections: 2026: 2.3; 2027: 1.7; 2028: 1.9.
  - GDP deflator projections: 2026: 1.5; 2027: 1.7; 2028: 1.9.

- Downside risks highlighted:
  - Rising geoeconomic tensions, including in the Middle East.
  - Potential for a disorderly AI correction.
  - Heightened political uncertainty ahead of the presidential elections planned for early 2027.
  - Prolonged energy supply disruptions in the Middle East.

- Upside scenario:
  - Easing geoeconomic tensions and renewed political consensus around ambitious structural reforms—supported by faster digitalization and deeper EU coordination—could boost confidence, investment, and overall growth.

### Public finance and fiscal outlook
- Key fiscal indicators (percent of GDP):
  - General government balance: 2025: -5.1; 2026: -5.2; 2027: -4.9; 2028: -4.5.
  - Revenue: 2025: 52.2; 2026: 52.4; 2027: 52.5; 2028: 52.6.
  - Expenditure: 2025: 57.3; 2026: 57.6; 2027: 57.4; 2028: 57.1.
  - Primary balance: 2025: -3.0; 2026: -2.7; 2027: -2.3; 2028: -1.7.
  - Structural balance (percent of pot. GDP): 2025: -5.1; 2026: -5.0; 2027: -4.7; 2028: -4.3.
  - General government gross debt: 2025: 115.7; 2026: 118.5; 2027: 120.3; 2028: 121.1.

- Fiscal strategy and recommendations:
  - Authorities remain committed to bringing the fiscal deficit below 3 percent of GDP by 2029.
  - Staff view: consolidation remains slower than planned; current pace insufficient to meet MTFSP objectives absent further measures.
  - Recommended frontloaded fiscal effort: about 0.8 percent of GDP per year over 2027–29, broadly consistent with the authorities’ MTFSP.
  - Fiscal response to the energy shock: appropriate to date; should remain limited, temporary, and targeted to the most vulnerable, while preserving market incentives and containing fiscal costs.
  - Need for an updated, clearly specified multi-year strategy anchored by a medium-term package of high-quality fiscal measures and reforms to reprioritize spending, improve efficiency, address aging pressures, and preserve room for priority needs.
  - Emphasis on contingency planning and protecting the most vulnerable if measures are well targeted and complemented by growth-enhancing structural reforms.

### Structural reform and labor market policy priorities
- Structural reform goals:
  - Reduce regulatory barriers.
  - Mobilize private financing.
  - Deploy well-targeted instruments to support innovation and the green transition.
  - Deepen single market integration at the EU level to amplify domestic reforms.

- Labor market and human capital policy recommendations:
  - Strengthen work incentives and foster longer and less fragmented careers.
  - Support female labor force participation.
  - Better integrate migrants.
  - More effective skills development aligned with AI and digital demands.
  - Ease bottlenecks and support labor mobility.

### Financial sector and stability assessment
- Financial stability overview:
  - Banking sector: remained resilient; stronger income performance, solid buffers, and low credit risk.
  - Growth of credit to the private non-financial sector: 2025: 1.2 percent; 2026: 1.0 percent; 2027: 1.5 percent; 2028: 1.8 percent.
  - Money market rate (Euro area): 2025: 2.2 percent.
  - Government bond yield, 10-year: 2025: 3.4 percent.
  - Borrower-based measures continue to contain household vulnerabilities.
  - Risks from non-financial corporates: manageable but warrant monitoring.
  - Vulnerabilities in the nonbank financial sector: limited, but rising interlinkages call for sustained vigilance.

- Supervisory priorities and actions:
  - In line with the 2025 FSAP recommendations, deepen supervisors’ understanding of risks from investment funds and broader financial sector linkages.
  - Strengthen cyber preparedness amid rising threats.
  - Maintain ongoing vigilance and proactive supervisory efforts to contain financial stability risks.

### Key quantitative indicators (selected rows from Table 1)
- Real Economy (change in percent):
  - Real GDP: 2023: 1.9; 2024: 1.4; 2025: 0.9; 2026: 0.6; 2027: 0.9; 2028: 1.2.
  - Domestic demand: 2023: 1.0; 2024: 0.2; 2025: 1.0; 2026: 0.4; 2027: 0.6; 2028: 1.1.
  - Foreign balance (contr. to GDP growth): 2023: 0.9; 2024: 1.2; 2025: -0.2; 2026: 0.2; 2027: 0.3; 2028: 0.1.

- Labor Market (percent change and rates):
  - Employment: 2023: 1.1; 2024: 1.3; 2025: 0.9; 2026: -0.1; 2027: 0.3; 2028: 0.5.
  - Labor force: 2023: 1.1; 2024: 1.3; 2025: 1.2; 2026: 0.5; 2027: 0.1; 2028: 0.3.
  - Unemployment rate (percent): 2023: 7.3; 2024: 7.5; 2025: 7.7; 2026: 8.2; 2027: 8.0; 2028: 7.8.

- Balance of Payments (percent of GDP):
  - Current account: 2023: -1.0; 2024: 0.1; 2025: -0.3; 2026: -0.8; 2027: -0.4; 2028: -0.2.
  - Trade balance of goods and services: 2023: -1.4; 2024: -0.1; 2025: -0.2; 2026: -0.6; 2027: -0.2; 2028: 0.0.
  - Exports of goods and services: 2023: 34.4; 2024: 33.7; 2025: 33.5; 2026: 32.8; 2027: 33.0; 2028: 32.9.
  - Imports of goods and services: 2023: -35.7; 2024: -33.8; 2025: -33.7; 2026: -33.5; 2027: -33.3; 2028: -32.9.
  - FDI (net): 2023: 1.7; 2024: -0.3; 2025: 0.2; 2026: 0.6; 2027: 0.6; 2028: 0.6.
  - Official reserves (US$ billion): 2023: 79.2; 2024: 78.4; 2025: 86.0.

- Potential output and output gap:
  - Potential output (change in percent): 2023: 1.4; 2024: 1.3; 2025: 0.8; 2026: 0.9; 2027: 0.9; 2028: 1.0.
  - Memo: per working age person: 2023: 1.1; 2024: 0.8; 2025: 0.2; 2026: 0.6; 2027: 0.7; 2028: 0.9.
  - Output gap: 2023: -0.3; 2024: -0.2; 2025: -0.2; 2026: -0.4; 2027: -0.4; 2028: -0.3.

### Executive Board and staff assessment
- Executive Directors’ views:
  - Agreed with the thrust of the staff appraisal; welcomed France’s continued resilience despite external shocks and domestic policy uncertainty.
  - Encouraged authorities to press ahead with fiscal consolidation while pursuing ambitious structural reforms to unlock potential and support durable, inclusive growth.
  - Highlighted the need for credible, growth-friendly, and expenditure-led fiscal consolidation to bring the deficit below 3 percent of GDP by 2029 and durably entrench debt sustainability.
  - Considered the 2025 fiscal overperformance welcome and the response to the energy shock appropriate; any further measures should remain limited, temporary, and targeted to the most vulnerable while preserving market incentives and containing fiscal costs.
  - Emphasized anchoring fiscal adjustment in a clearly specified multi-year strategy of high-quality measures and structural reforms to reprioritize spending, improve efficiency, address aging pressures, and preserve room for priority needs.
  - Stressed robust contingency planning and the importance of domestic and EU-level reforms to strengthen resilience and growth.

- Commendations:
  - Directors commended France’s leadership in multilateral cooperation on global challenges related to debt, climate, and global imbalances and through official development assistance.

*Source: FRANCE STAFF REPORT FOR THE 2026 ARTICLE IV CONSULTATION (selected excerpts).*

### 5.      Labor market momentum has begun to soften. Labor force participation reached a historic

### 5.      Labor market momentum has begun to soften. Labor force participation reached a historic

### Labor market developments
- Labor force participation reached a historic high of 75.6 percent in 2026Q1, supported by gains across all groups.
- The unemployment rate rose to 8.1 percent in 2026Q1 from 7.7 percent in 2025.
- The Full Employment Act—implemented in 2025 to strengthen enrollment of certain public assistance recipients in training and support programs under France Travail—is estimated to have raised recipients’ labor force participation and, as a result, at least temporarily, unemployment by about 0.2 percentage points since implementation (INSEE).
- After improvement in early 2025, especially among older workers, the employment rate began to ease in the second half of 2025, driven mainly by weaker employment among younger workers following reduced support for apprenticeship programs.
- Labor productivity rose by 1.5 percent in 2025, regaining most of its pandemic losses, with significant sectoral heterogeneity.

### Fiscal stance and public finances
- The fiscal deficit declined to 5.1 percent of GDP in 2025, below the initial target of 5.4 percent, reflecting proactive spending management.
- Public debt increased to 115.7 percent of GDP in 2025.
- The 10-year OAT-Bund spread peaked above 85 bps in early October 2025, narrowed to around 55 bps after adoption of the 2026 budget in February, and widened again to about 75 bps (as of mid-June), with the 10-year OAT yield at 3.7 percent.
- The 2026 budget entails a structural primary adjustment of about 0.5 percent of GDP and leaves the deficit at 5 percent of GDP, short of the 4.6 percent target in the MTFSP.
- The adjustment includes 0.4 percent of GDP in revenue measures and 0.6 percent of GDP in gross spending cuts across the state.
- The government adopted a €6 billion savings package (about 0.2 percent of GDP) to offset the macroeconomic and interest-rate impact of the Middle East shock.
- Absent further measures, under staff’s baseline the fiscal deficit is projected at 5.2 percent of GDP.
- Under staff’s baseline projection for 2027–29, the fiscal deficit is projected to decline only gradually and to remain elevated at 3.5 percent of GDP in the medium term, while public debt rises to nearly 122 percent of GDP by 2030 before starting to stabilize.
- Staff continues to assess the overall debt distress risk as moderate (Annex VI).

### Credit, financial conditions, and investment
- Household lending rose by only 0.7 percent (y-o-y, end-of period) since 2025, reflecting weak mortgage activity.
- NFC credit growth picked up to 2.5 percent (y-o-y, end-of-period) in 2026Q1, from 1.9 percent in 2024, with a gradual shift from working capital to investment loans.
- Funding costs have edged up in early 2026 after normalizing in 2025, although they remain below euro area averages.
- Renewed inflationary pressures from higher commodity prices are tightening financing conditions and could further delay the recovery in credit growth.

### External position
- The current account balance weakened from a surplus of 0.1 percent of GDP in 2024 to a deficit of 0.3 percent of GDP in 2025, mainly due to a decline in the income balance.
- The CA balance stood at -0.2 percent of GDP in 2026Q1, broadly unchanged from 2025Q1, although April data point to a widening of the energy deficit.
- French goods exports to the US (7.9 percent of total goods exports) were largely unchanged in 2025 (-0.9 percent y-o-y).
- Staff assesses the CA gap in 2025 to be between -0.9 and -0.1 percent of GDP, with a midpoint of -0.5 percent of GDP (compared to a midpoint of 0.3 percent of GDP in 2024).
- The overall policy gap is 0 percent of GDP.

### Outlook and risks
- Baseline growth projection: real GDP growth slowing to 0.6 percent in 2026.
- Headline inflation is expected to average around 2.3 percent in 2026 and 1.7 percent in 2027; core inflation is projected to remain below 2 percent.
- Long-term potential growth expected to stabilize around 1 percent absent strong reforms.
- Upside long-term scenario: with structural reforms and broader AI adoption, long-term growth could rise above 1.4 percent; deeper EU integration could boost TFP growth by at least 0.4 percentage points.
- Downside long-term scenario: prolonged domestic uncertainty and policy inertia could depress medium-term growth to about 0.7 percent.
- Near-term risks are tilted to the downside: energy/commodity price shocks from geopolitical tensions (notably the Middle East), potential disorderly AI market corrections affecting financial flows, and heightened domestic political uncertainty delaying fiscal consolidation and structural reforms.
- Upside risks: easing geoeconomic tensions, renewed political consensus around ambitious structural reforms, stronger external demand, and gains from AI diffusion.

### Policy discussions and recommendations
- Fiscal policy: shape a credible, well-defined multi-year strategy to unlock growth and support fiscal consolidation; reprioritize spending, improve efficiency, strengthen public finances, and support debt sustainability while preserving space for priority spending (defense, population aging, digital and green transitions).
- Energy shock response: support measures to date totaled about € .4 billion (0.05 percent of GDP) in two phases (an initial package and an additional €930 million); further measures should remain limited, temporary, targeted to the most vulnerable, preserve market incentives, ensure adequate pricing of externalities, and safeguard fiscal sustainability.
- Structural reforms: focus on easing regulatory bottlenecks, mobilizing private savings toward productive investment, strengthening labor supply amid demographic pressures and transitions, and leveraging digital and green transitions; a coherent policy package combined with deeper EU single market integration would bolster confidence and support durable, inclusive growth.
- Financial sector: proactively strengthen the policy toolkit to address an increasingly complex landscape and support efficient transmission of reforms.

*Source: 1fraea2026001 - 5.      Labor market momentum has begun to soften. Labor force participation reached a historic*

### 16.      A new, clearly specified multi-annual strategy, anchored in high-quality measures and

### 16.      A new, clearly specified multi-annual strategy, anchored in high-quality measures and reforms

### Multi‑annual fiscal strategy and recommended consolidation
- Objective: meet the MTFSP commitment of reducing the fiscal deficit below 3 percent of GDP by 2029 and markedly reduce medium-term debt sustainability risks.
- Staff recommendation: a frontloaded fiscal effort of about 0.8 percent of GDP per year over 2027–29, which could be gradually eased thereafter, especially if supported by growth-enhancing domestic and EU-level structural reforms (¶25).
- Any adjustment that cannot be realized before the 2027 elections should be complemented by a supplementary budget thereafter.
- Institutional recommendations:
  - Align the Organic Budget Law with the new EU governance framework.
  - Adopt a new Multi-Year Programming Law to underpin the MTFSP with clearly articulated and quantified high-quality measures and reforms.
- Complementary action: a carefully designed structural reform package to mitigate macroeconomic and distributional effects of consolidation and reinforce the improvement in debt dynamics.

### Fiscal scenarios (France: Percent of GDP, unless noted otherwise) — IMF staff estimates
- Notes:
  - Fiscal effort is computed as the change in the structural primary balance.
  - Under the recommended scenario with structural reforms, policies are expected to contribute 0.1 to TFP growth in 2027 and 0.2 onwards.

- Baseline scenario (series by year: 2025, 2026, 2027, 2028, 2029, 2030, 2031)
  - Real GDP growth (percent): 0.9, 0.6, 0.9, 1.2, 1.1, 1.1, 1.1
  - Revenue: 52.2, 52.4, 52.5, 52.6, 52.7, 52.8, 52.9
  - Expenditure: 57.3, 57.6, 57.4, 57.1, 56.7, 56.6, 56.4
  - Overall balance: -5.1, -5.2, -4.9, -4.5, -4.1, -3.8, -3.5
  - Primary balance: -3.0, -2.7, -2.3, -1.7, -1.1, -0.6, 0.0
  - Fiscal effort 1/: 0.9, 0.5, 0.5, 0.5, 0.5, 0.5, 0.5
  - Legislated measures: 0.5, 0.1, 0.2, 0.2, 0.2, 0.2, 0.2
  - Planned measures, not yet legislated: 0.0, 0.3, 0.4, 0.4, 0.3, 0.3
  - Public debt: 115.7, 118.5, 120.3, 121.1, 121.6, 121.8, 121.8

- Recommended scenario (series by year: 2025, 2026, 2027, 2028, 2029, 2030, 2031)
  - Real GDP growth (percent): 0.9, 0.6, 0.9, 1.2, 1.2, 1.1, 1.1
  - Revenue: 52.2, 52.4, 52.5, 52.6, 52.7, 52.8, 52.9
  - Expenditure: 57.3, 57.3, 56.7, 56.0, 55.4, 55.1, 54.8
  - Overall balance: -5.1, -4.9, -4.2, -3.4, -2.8, -2.3, -1.8
  - Primary balance: -3.0, -2.4, -1.6, -0.6, 0.1, 0.8, 1.4
  - Fiscal effort 1/: 0.9, 0.8, 0.8, 0.9, 0.7, 0.6, 0.6
  - Fiscal effort compared to baseline 1/: 0.3, 0.3, 0.4, 0.1, 0.1, 0.1
  - Public debt: 115.7, 118.1, 119.2, 119.0, 118.1, 117.0, 115.5

- Recommended with structural reforms 2/ (series by year: 2025, 2026, 2027, 2028, 2029, 2030, 2031)
  - Real GDP growth (percent): 0.9, 0.6, 1.0, 1.4, 1.4, 1.3, 1.3
  - Revenue: 52.2, 52.4, 52.5, 52.6, 52.7, 52.8, 53.0
  - Expenditure: 57.3, 57.3, 56.7, 55.9, 55.3, 54.9, 54.6
  - Overall balance: -5.1, -4.9, -4.2, -3.3, -2.6, -2.1, -1.6
  - Primary balance: -3.0, -2.4, -1.6, -0.5, 0.3, 0.9, 1.6
  - Fiscal effort 1/: 0.9, 0.8, 0.8, 0.8, 0.7, 0.5, 0.5
  - Fiscal effort compared to baseline 1/: 0.3, 0.3, 0.3, 0.1, 0.0, 0.0
  - Public debt: 115.7, 118.1, 119.1, 118.5, 117.3, 115.7, 113.9

- 1/ Computed as the change in the structural primary balance.
- 2/ Under the recommended scenario with structural reforms, policies are expected to contribute 0.1 to TFP growth in 2027 and 0.2 onwards.

### Revenue-side constraints and recommendations
- Context: France’s revenue-to-GDP ratio was 52.2 percent in 2025, among the highest in the euro area, constraining scope for further revenue-based adjustment.
- Assessment:
  - Consolidation in 2025–26 relied largely on temporary revenue measures, notably higher corporate taxation.
  - Continued reliance on tax increases is judged neither feasible nor desirable given risks to business confidence, competitiveness, and growth.
- Priorities for any additional revenue measures:
  - Reduce tax loopholes.
  - Eliminate inefficient tax expenditures.
  - Address distortions in the taxation of capital income.
  - Strengthen compliance and fairness.
- Reforms enhancing revenue administration:
  - Comprehensive anti-fraud law.
  - Rollout of mandatory e-invoicing from September 2026 to enhance transaction transparency and traceability, and strengthen detection, sanctioning, and recovery of social and tax fraud.

### Reprioritizing spending — main pressures and priorities
- Overall public spending: 57.3 percent of GDP in 2025, the highest in the euro area, largely reflecting elevated current spending.
- Key spending pressures:
  - Population aging:
    - Age-related spending exceeded 40 percent of total public spending in 2023, up from 29 percent in 1998.
    - Demographic pressures alone could raise public expenditure to 60.8 percent of GDP by 2070, nearly 4 percentage points above its current level (Court of Auditors, 2025).
  - Public investment and transition needs:
    - The 2026–35 Multi-Year Energy Program (PPE3) calls for an additional €   billion (0.6 percent of GDP) in annual investments to strengthen energy sovereignty, expand low-carbon electricity, and reduce fossil fuel reliance.
    - The Electrification Plan targets a doubling of annual public support to €10 billion by 2030.
  - Defense spending:
    - NATO core military spending commitments of 3.5 percent of GDP by 2035—up from 2.1 percent in 2025—add fiscal demands.
    - Government updated the 2024–30 military programming law, adding €36 billion to the existing plan.
- Fiscal consolidation strategy: rationalize inefficient spending, reallocate current and social spending towards priority areas, supported by ambitious structural reforms and ongoing spending reviews; preserve equity and protect the most vulnerable.
- Implementation note: action will be required across central, social security and local government levels; enhance investment efficiency and reduce overlaps in government spending.

### Health and education — efficiency and adaptation to aging
- Health spending:
  - France’s public health spending about 9 percent of GDP, exceeding the EU average by 1.5 percentage points.
  - Out-of-pocket payments account for around 10 percent of total health spending, compared with about 15 percent in the EU.
  - Recommendation: carefully designed co-payments for non-essential or non-urgent services—calibrated by income and/or health status—to contain aging-related cost pressures while preserving access and quality and protecting low-income and high-need households.
  - Importance of efficient spending on disability prevention, especially after age 55.
- Education spending:
  - Education spending about 5 percent of GDP, aligning with peers, but learning outcomes lag (PISA scores) and efficiency has deteriorated.
  - Priorities as primary school enrollment declines: shift toward improving quality and reallocating resources to disadvantaged students (REP/REP+), lifelong learning, and skills better aligned with labor market needs.
  - Vocational training participation among those aged 55–64 is 35 percent versus 57 percent for ages 18–44 (Court of Auditors).
  - Recommendations: expand adult education and reskilling, strengthen vocational training, direct resources toward parental leave and childcare to support fertility.

### Labor market and social protection reforms
- Unemployment benefits:
  - France’s unemployment benefits remain relatively generous for certain groups compared to peers, providing strong income protection but potentially weakening incentives for longer working lives.
  - Recent measures:
    - Adoption of the bill to reduce unemployment benefits duration by mutual agreement.
    - Ongoing efforts to establish a unified social allowance (merging RSA, prime d’activité, and housing allowances by 2030).
  - Further refinements warranted on eligibility, duration, and conditionality; better alignment between unemployment benefits and active labor market policies.
- Pension reform:
  - Pension spending about 14 percent of GDP compared to the EU average of 11.5 percent.
  - Suspension of the 2023 pension reform froze the retirement age to 62 years and 9 months until January 1, 2028, reducing expected savings by €0.4 billion in 2026 and €1.8 billion in 2027 (¶13), and creating renewed uncertainty.
  - Recommended reforms:
    - Institutionalize automatic adjustment mechanisms linked to demographic developments and regular sustainability reviews.
    - Strengthen incentives for longer working lives, harmonize retirement plans, and enhance portability.
  - Box 1 (Pension Sustainability highlights):
    - Share of population aged 65 and over projected to rise from nearly 22 percent in 2024 to about 30 percent by 2070 (Court of Auditors).
    - Under staff’s baseline, the pension balance would shift from a near balance to a deficit of about 2.6 percent of GDP by 2070.
    - In a more adverse scenario combining weaker demographics, higher life expectancy, and a freeze of the retirement age at 63, the deficit could widen to around 4.6 percent of GDP.
    - Staff simulations: the planned increase of the retirement age to 64, as envisaged in the 2023 reform, will reduce the pension deficit by about 1 percent of GDP by 2070.
    - Continuing to gradually increase the retirement age, in line with peers, could help build buffers and secure the pension system balance.

### Spending reviews, governance, and contingency planning
- Spending reviews:
  - The 2025 reviews yielded about €5.2 billion for the 2026 budget.
  - Ongoing reviews cover health agencies, waste management, allowances and benefits of civil servants, and family policies.
  - Recommendation: embed spending reviews systematically under the new multi-year programming law and broaden coverage to all levels of general government, including local authorities and social security funds.
  - Translate quantitative potential savings from spending reviews into binding expenditure ceilings and embed in the medium-term fiscal framework.
  - The “État efficace” mission is an important framework to rationalize public action, reduce administrative complexity, and eliminate overlaps.
  - Complementary measures: strengthen fiscal oversight, enhance transparency, reinforce the role of the High Council for Public Finances (March 2025 Action Plan).
- Contingency planning:
  - France has some fiscal space that could be deployed in the event of downside risks, in line with EU fiscal rules.
  - Authorities plan to absorb new defense spending needs within existing fiscal consolidation plans by reprioritizing resources.
  - If growth falls significantly short of the baseline (e.g., higher energy prices and tighter financial conditions), authorities could allow automatic stabilizers to partly operate and consider well-targeted and time-bound fiscal measures to support the most vulnerable, while preserving market incentives (¶14).
  - Importance of sustained fiscal consolidation: insufficient adjustment risks placing public debt on an unsustainable trajectory and amplifying macro-financial vulnerabilities.
  - A well-defined and high-quality multi-year package of measures complemented by far-reaching structural reforms would provide a valuable medium-term anchor; greater EU coordination can improve efficiency, reduce financing costs, and enhance resilience.

*International Monetary Fund: France — chapter 16, from the referenced IMF staff report.*

### 24.      The authorities reaffirmed their strong commitment to fiscal consolidation in line with

### 24.      The authorities reaffirmed their strong commitment to fiscal consolidation in line with EU rules and the Medium-Term Fiscal-Structural Plan (MTFSP), despite the challenging external environment.

### Fiscal consolidation and recent fiscal stance
- 2025 fiscal overperformance reflected stronger budgetary governance and additional spending cuts.
- Objective: reduce the deficit below 3 percent of GDP by 2029, as set out in the April 2026 Annual Progress Report.
- Response to the Middle East energy shock characterized as timely, temporary, and targeted; additional spending cuts implemented to offset its impact on the fiscal balance.
- Ongoing and rising spending pressures highlighted: defense, population aging, and the digital and green transitions.
- Structural fiscal reforms needed to reprioritize spending and improve efficiency across central, social security and local government levels while mitigating growth and distributional impacts.
- Successive unemployment insurance reforms since 2019 and the 2023 pension reform cited as measures to strengthen work incentives and improve sustainability.
- Spending reviews and improved fiscal governance underscored as critical to support consolidation.
- Discussions underway to define a package of measures for the 2027 budget in the fall and secure broad-based political support.

*Macrostructural Policies: Turning Structural Transitions into Engines of Innovation and Growth*

### Growth enhancement and reform targets
- Baseline potential growth: 1 percent.
- Target: sustained increase of at least 0.4 percentage points could improve debt dynamics and support more inclusive growth.
- Predictability and timely implementation of reforms emphasized to ensure steady increases in household incomes and investment incentives.
- Medium-term agenda priorities: tackling structural bottlenecks and unlocking innovation; improving access to finance; investing in human capital.
- Deeper integration within the European single market recommended to amplify domestic reform impacts.

### Tackling structural bottlenecks and unlocking innovation
- Administrative barriers remain high in parts of the economy; Simplification Bill and related decrees noted as steps to lower SMEs’ compliance costs (converting selected authorizations into declarations, expanding “Tell us once”, introducing SME impact tests).
- Faster approval processes expected to support industrial, energy, and data‑infrastructure investment.
- Policy measures suggested: ease entry restrictions in selected services and regulated professions; reduce labor market segmentation by rebalancing incentives across contract types; enhance mobility; further tighten unemployment benefit rules.
- European-level action: implementing the 28th regime would further reduce transaction costs and facilitate firm scaling.

### AI, R&D, and productivity
- France’s AI strategy since 2018 strengthened R&D and innovation capacity; positioned France as a leading AI hub in Europe.
- Recent AI investment increasingly directed toward data‑center infrastructure.
- AI adoption among firms remains below the EU average but increased significantly in 2025 relative to 2024, particularly among SMEs.
- Staff estimate: cumulative increase in total factor productivity of about 1.2 percent over five years from broader AI diffusion (estimate subject to considerable uncertainty).

### Climate, energy strategy, and resilience
- Electricity generation largely nuclear- and renewable‑based: 95 percent of total in 2025.
- France’s national low-carbon strategy (SNBC) target: reduce industrial emissions by 70 percent by 2030 compared with 1990.
- Multi-year energy plan (PPE 3) and the electrification plan align with SNBC objectives, including targets to expand nuclear power production and reduce fossil fuel consumption.
- Accelerating grid investment and deepening integration of the European electricity single market recommended to enhance resilience and manage supply–demand pressures during shocks.
- Low-emissions resources and relatively low electricity costs can underpin growth in AI infrastructure and advanced manufacturing.

### Innovation clusters and technology transfer
- Innovation clusters link firms, research institutions, and training providers to accelerate innovation, support industrial transformation, and integrate into European value chains.
- Clusters help translate research and public investment into firm‑level outcomes, particularly for young firms, and support digital, green, and industrial transitions under France 2030.

### Improving access to finance and mobilizing private capital
- Mobilizing private financing, particularly venture capital (VC), essential to foster entrepreneurship and scale high‑growth firms.
- Europe’s limited VC depth reflects non-funded pension systems, conservative institutional investment behaviors, regulatory frictions, and fragmented capital markets.
- Programs like the Tibi initiative have mobilized domestic institutional capital and strengthened the venture capital ecosystem; plans to expand similar efforts at the EU level.
- Access to risk capital remains limited, especially at later growth stages.
- Advancing the Savings and Investment Union and reforms that enhance business dynamism, R&D, exit opportunities, and institutional investor engagement would unlock investment and scale innovative firms.

### State support, targeting, and effectiveness (Box 2 summary)
- Non-crisis state aid in France: about 1.1 percent of GDP in 2024.
- Firm-level evidence (IMF WP 26/122): state aid raises recipient firms’ productivity, sales, and employment—about 3 percent on average for productivity.
- Larger gains concentrated in younger firms: around 26 percent productivity increases for young firms.
- RDI aid most effective when directed at young firms in high‑tech sectors; aid to young firms may crowd in private investment (evidenced by higher long-term debt levels), whereas no comparable effect for older firms.
- Cross-country firm-level evidence: recipient EU-based firms experience temporary gains while nonrecipient firms in the same industries face declines in employment and revenues, with negative cross-country spillovers more pronounced in concentrated sectors.
- Recommendation: narrowly targeted, time-bound state aid addressing clearly identified market failures and stronger EU-level coordination to mitigate adverse spillovers and preserve efficient resource allocation.
- Suggestion to strengthen transfer of public research to private sector by simplifying regulation, leveraging innovation clusters, and fostering researchers’ mobility.

### Household savings, asset allocation, and financial literacy
- Despite high saving rates, French households’ real financial wealth has edged down, with portfolios dominated by liquid, capital‑guaranteed instruments and limited exposure to risk-bearing assets.
- Financial literacy remains still-low despite France’s EDUCFI strategy (since 2016) and ongoing operational adaptations.
- Initiatives like the “Finance Europe” label aim to promote long-term, equity‑oriented investment products, but impact depends on coherence in national tax incentives.
- Scope to better align tax treatment of equity‑oriented vehicles (PEA and PER) with life‑insurance products and regulated savings accounts to channel more savings toward productive investment.

### Boosting employment and human capital
- Labor supply needs: foster longer, less fragmented careers, higher female participation, and better migrant integration.
- Education and training systems should adapt; weaker learning outcomes point to improving efficiency rather than increasing spending.
- Smaller cohorts imply higher per-student spending and scope to reorient resources toward learning gains and training.
- Coherent strategy combining labor market incentives, targeted family policies, and effective skill development is needed to enable France’s human capital to adapt to an aging economy and harness transition opportunities.
- Facilitate intra‑EU labor mobility, including improved recognition of professional qualifications.

### Demographics and family policies (Box 3 summary)
- France’s demographic outlook weakened: declining fertility and accelerating population aging.
- 2025: births fell further and total fertility rate fell to 1.56 children per woman, significantly below the 2.1 benchmark required to stabilize the population (INSEE).
- Aging projected to raise the old‑age dependency ratio markedly.
- Policy emphasis: support fertility by reducing economic and career costs of childbearing and strengthen labor supply by enabling longer and less fragmented careers, especially among women.
- Ongoing reforms to parental leave and access to affordable early childhood education and care noted; outcomes depend on benefit generosity, duration, and eligibility.
- Female labor force participation: 72.7 percent in 2025Q4.

*Source: Excerpt from IMF staff report (France) chapter on fiscal consolidation and macrostructural policies.*

### 78.3 percent for men, but disparities persist in working hours, career progression, and pay, partly reflecting

### 1fraea2026001 - 78.3 percent for men, but disparities persist in working hours, career progression, and pay, partly reflecting

### Parental leave, gender gaps, and labor-force participation
- Findings:
  - "78.3 percent for men" is reported as a participation benchmark, but "disparities persist in working hours, career progression, and pay, partly reflecting caregiving constraints."
  - Following childbirth, mothers are substantially more likely than fathers to reduce working hours or transition to part-time employment, contributing to an estimated lifetime earnings gap of "20–30 percent (ANACT)."
  - The extension of paid paternity leave to    days increased take‑up to about    percent in    , indicating that individual entitlements can affect behavior.  owever, fathers’ participation in longer, shareable leave remains limited, consistent with within‑household incentives shaped by wage differentials and perceived career costs.
  - The      Social Security  udget’s introduction of an additional, gender-symmetric two-month birth leave per parent, could further balance caregiving roles.
- Policy recommendations:
  - Complementary reforms—including expanded affordable childcare and stronger incentives for fathers to take longer leave—would help narrow participation gaps and improve women’s labor‑market outcomes, supporting labor supply and potential growth over the medium term.
- Data notes:
  - "France and OECD Peers: Parental Leave by Duration and Take‑up" sources: OECD Family Database, International Social Survey Programme (ISSP) 2022, IMF staff calculations.
  - Note: Data for France refers to 2016 for (LHS); OECD average calculated as unweighted mean across 22 countries with available data, with most recent year (typically 2022–23) used for each country.

### Digitalization, AI, and skills
- Findings:
  - "With digitalization progressing rapidly, the authorities should strengthen preparedness for potential medium-term labor market effects from AI."
  - No clear evidence yet of an impact on aggregate labor demand, but AI diffusion could widen employment disparities across workers, sectors, and skill groups; automation could reduce entry-level opportunities for young workers and prompt earlier labor force exit among older workers (SDN2026/001 and SDN/2024/001).
  - Recommendation to expand AI-related business surveys and leverage administrative data to better track labor market effects.
- Skills and education findings:
  - Basic digital skills for AI adoption: In 2024, "59.7 percent of the French population (60.2 percent of women) had at least basic digital skills," exceeding the EU average of "55.6 percent."
  - Basic digital skills lag by "about 20 percentage points" for those with low education levels relative to the national average.
  - Advanced skills: France is well positioned thanks to tertiary education, on-the-job learning, and workforce competency in literacy and numeracy; share of ICT specialists is "4.8 vs. 5 percent" (slightly below the EU average).
- Policy recommendations:
  - Update the Strategy for Digital Inclusion to reflect evolving digital skill requirements (post-LLMs).
  - Accelerate and better align education and training with fast-evolving digital skill requirements, strengthen secondary education in STEM and advanced digital skills, and support supply of ICT specialists.
  - Structural reforms: increase labor-market flexibility (¶26), lower non-wage costs, and target reskilling to facilitate reallocation across tasks and occupations.

### Financial sector resilience and systemic risks
- Banking sector performance and buffers:
  - Capital adequacy in line with the EU average.
  - Liquidity metrics in 2025Q4: Liquidity Coverage Ratio of "143.4 percent" and Net Stable Funding Ratio of "115 percent."
  - Banks’ profits rose in 2025; profitability remains stable but lags European peers due to high cost-to-income ratios and narrow net interest margins.
- Non-financial corporate (NFC) risks:
  - France’s consolidated NFC debt "remains stable but elevated at 74.7 percent of GDP."
  - Debt service-to-gross income ratio is "around 45."
  - NFC NPLs have remained broadly stable "around 2 percent."
  - Corporate bankruptcies have edged up, concentrated among small firms in specific sectors.
  - NPLs in the real estate sector are "3.1 percent," slightly exceed the national average but remain well below historical highs.
- Household sector and borrower-based measures:
  - Household debt declined to "about 60 percent of GDP in 2025," though above peer levels.
  - Average debt service-to-income (DSTI) on new loans edged up to "nearly 31 percent as of end-2025," below the regulatory cap of 35 percent.
  - Household NPLs are "2.2 percent," on a slight upward trend.
  - Housing price recovery is slow; price-to-income ratios remain relatively low versus peers.
  - Consideration could be given to expanding borrower-based measure coverage to home renovation and consumer credit loans to avoid leakages (FSAP 2025).
- Sovereign exposure and indirect effects:
  - French banks’ holdings of domestic sovereign debt: "only about 10 percent of domestic sovereign bonds held by major banks—less than 0.6 percent of total assets—marked to market."
  - Direct valuation risks from sovereign exposures are contained, but higher sovereign borrowing costs can weigh on profitability via funding costs and borrower repayment capacity.
- Macroprudential and systemic policy:
  - The countercyclical capital buffer (CCyB) "currently at 1 percent" provides an additional safeguard; clear communication on releasability remains important (¶10).
  - The High Council of Financial Stability (HCSF) review broadened objectives to include preventing sharp credit contractions and strengthened communication; authorities should ensure HCSF’s operational independence and legal powers.
  - Investment fund sector is "less than 10 percent of the euro area total"; corporate financing through NBFIs is "below 4 percent of annual bank lending to French NFCs in 2024."
  - Ongoing system-wide stress test (first of its kind in the EU) should deepen understanding of risks related to investment funds, provide common metrics, and inform cross-border data needs (June 2026 Interim Report).
  - Cyber risks: entry into force of DORA is welcome; effective implementation and strengthened interagency coordination are critical given rising AI-related cyber threats.

### Governance, anti‑corruption, and enforcement
- Findings:
  - The National Multi-year Plan to Fight Corruption (2025–29) foresees increased resources for anti-corruption investigation and training.
  - Establishment of the Organized Crime Task Force to improve coordination and information-sharing.
  - Seized assets "having increased more than threefold in 2025 relative to 2024."
- Staff and authorities’ interaction:
  - Authorities broadly concurred with staff’s assessment of financial sector resilience and the need to adapt the policy toolkit to emerging risks (¶44).

### Macroeconomic outlook and fiscal policy
- Outlook and risks:
  - The French economy "continued to grow at a modest pace in 2025" with contained inflation, but headwinds from the Middle East war have started to weigh on activity.
  - Growth is projected to slow in 2026 and recover only gradually thereafter; risks are tilted to the downside (geoeconomic tensions, energy supply disruptions, domestic policy uncertainty ahead of the 2027 presidential elections, tighter financial conditions).
  - Upside: easing geoeconomic tensions and ambitious reforms could lift confidence, investment, and growth.
- Fiscal priorities:
  - "Advancing fiscal consolidation is a priority, amid high deficit and public debt levels."
  - The 2025 fiscal overperformance is welcome; authorities’ response to the energy shock should remain limited, temporary, and targeted.
  - Urgency to bring the deficit below "3 percent of GDP by 2029," in line with the authorities’ MTFSP and EDP rules.
  - Policy prescription: articulate a credible, clearly specified multi-year strategy anchored in high-quality fiscal measures and structural reforms to reprioritize spending, improve efficiency, strengthen public finances, preserve room for priority spending, and support medium-term growth.
- Contingency planning:
  - Elevated global uncertainty underscores the importance of robust contingency planning.

*Source: Excerpts from the IMF staff report chapter provided in the supplied PDF content.*

### 48.      Fra  e’s e o omi  resilie  e a   gro t   er orma  e  i ge o  its a ility to le erage

### 48.      Fra  e’s e o omi  resilie  e a   gro t   er orma  e  i ge o  its a ility to le erage

### Structural reforms, innovation, and energy transition
- Ongoing structural transitions require ambitious domestic and EU-level reforms to reduce regulatory barriers, mobilize private financing, and deploy well-targeted instruments to support innovation and the energy transition.
- Key policy directions:
  - Foster entrepreneurship, spur R&D, and scale high-growth firms.
  - Deepen the single market—through the Savings and Investment Union and the proposed 28th regime—to improve financing conditions, reduce fragmentation, and amplify domestic reforms.
  - Support AI diffusion and prepare for its labor market implications to raise productivity and ease adjustment.
  - Accelerate electrification and deeper integration of EU electricity markets to strengthen resilience, reduce fossil fuel dependence, and support the transition.

### Labor supply and skills
- A coherent policy mix is essential to address France’s labor force constraints amid rising demographic pressures and digital/structural transitions.
- Policy recommendations:
  - Boost labor supply through longer and less fragmented careers and stronger work incentives.
  - Implement targeted family policies to support female labor force participation and improve migrant integration.
  - Reform education and training to align with labor market needs and AI demands, strengthening digital and financial literacy.
  - Improve labor mobility via better recognition of professional qualifications and smoother reallocation across jobs and sectors.

### Financial stability and supervision
- Financial stability risks remain contained, backed by proactive supervisory efforts.
- Key assessments:
  - Banking sector resilient, with solid buffers and low credit risk.
  - Borrower-based measures contain household vulnerabilities; risks from nonfinancial corporates manageable but warrant continued monitoring.
  - Rising interlinkages in the nonbank financial sector call for continued vigilance.
- Ongoing supervisory priorities and progress:
  - Deepen supervisors’ understanding of investment fund and broader financial sector linkages via a system-wide stress test (ongoing).
  - Strengthen cyber preparedness and structured cooperation (MoU on TLPT between ACPR / BDF / AMF signed; MoU between ACPR / BDF / ANSSI being prepared).
  - Review and expand macroprudential strategy: HCSF concluded review, confirmed framework appropriateness, expanded risk coverage, and updated internal rules.
  - Insurance sector and resolution: transposition of Insurance Recovery and Resolution Directive underway, set to enter into force in early 2027; liquidity risk management and recovery plans to apply after Solvency II review (2027).

### Fiscal policy, governance, and recent actions
- Article IV timing:
  - It is proposed that the next Article IV consultation with France takes place on the standard 12-month cycle.
- Fiscal performance and targets:
  - France’s fiscal deficit in 2025: 5.1 percent of GDP (below the 5.4 percent deficit target).
  - IMF 2025 recommendation: implement a fiscal structural primary effort of about 0.9 percent per year over 2026-2030 to bring the deficit below 3 percent of GDP by 2029. Authorities remain committed to bringing the deficit below 3 percent of GDP by 2029.
- Authorities’ March 2025 action plan and governance measures:
  - Establishment of the Public Finance Alert Committee (regular meetings since April 2025). Examples of Committee actions:
    - Recommended cancelling 3.1 billion in credits in April and €1.7 billion in June.
    - Increased contingent reserves for line ministries.
    - At its April 2026 meeting, the Committee reviewed the fiscal impact of the Middle East energy shock and recommended €  billion in savings to safeguard the 5 percent of GDP deficit target (text shows blank as provided).
  - Regular Meetings of a Circle of Forecasters (meetings in May and October 2025 include Banque de France, OECD, IPP, OFCE, Rexecode, Fiscal Council, Social Security Accounts Commission).
  - Transparency and risk communication measures in the 2026 budget: section on uncertainty with a fan chart, publications on fiscal forecasting and budget execution, and preparation of a 2050 Public Finance Outlook (expected to be released by summer).
  - Strengthened role of the Fiscal Council (HCFP) through enhanced coordination with the Circle of Forecasters and the Alert Committee; systematic involvement in the annual progress report (RAA) of the MTFSP.
  - Improved communication with Parliament via timely updates to rapporteurs and committee chairs and commitments to share ex-post reports on macroeconomic and public finance forecasts.

- Assessment of the action plan:
  - Positive step toward enhancing fiscal credibility, but ultimate effectiveness depends on sustained implementation and embedding the plan within a credible medium-term fiscal framework with well-defined multi-year measures.
  - Opportunity to align the Organic Budget Law with the reformed EU fiscal framework and to enshrine key elements of the March 2025 action plan into legislation.

### External sector assessment and vulnerabilities
- Overall assessment:
  - The external position in 2025 was broadly in line with the level implied by medium-term fundamentals and desirable policies.
- Current account (CA) and projections:
  - 2025 CA balance: -0.3 percent of GDP (down from a surplus of 0.1 percent in 2024).
  - Drivers in 2025: fall in the income balance; trade balance slightly weakened to -0.2 percent of GDP.
  - 2026 projection: CA balance expected to decline to -0.8 percent of GDP due to the Middle East shock and a weak start for exports in Q1.
  - Medium-term projection: CA balance projected at 0.2 percent of GDP by 2031 as commodity prices stabilize and external demand improves.
  - Contribution of net factor income and external transfers projected to remain negative throughout the forecasting horizon.
- CA diagnostics and gaps:
  - 2025 cyclically adjusted CA: -0.3 percent of GDP.
  - EBA-estimated norm: 0.3 percent.
  - EBA Gap: -0.5 percent of GDP.
  - Staff Adjustment: 0.0.
  - Staff Gap: -0.5 percent of GDP.
  - IMF staff assesses the CA gap in 2025 to be between -0.9 and -0.1 percent of GDP, with a midpoint of -0.5 percent of GDP.
  - Policy gap: zero (positive contribution from the credit gap broadly offset by negative contributions from fiscal and health expenditure).
- Real exchange rate (REER):
  - 2025 CPI-based REER: remained flat; ULC-based REER appreciated by 3 percent.
  - As of March 2026, CPI-based REER was 0.3 percent below the 2025 average.
  - As of February 2026, ULC-based REER was 2 percent above the 2025 average.
  - Staff assesses the REER gap to be 2.0 percent with a range of ± 1.4 percent, using an elasticity of 0.27.
- Foreign asset and liability position (2025):
  - NIIP: −28.4 percent of GDP.
  - Gross Assets: 384 percent of GDP.
  - Debt Assets: 213 percent of GDP.
  - Gross Liabilities: 412 percent of GDP.
  - Debt Liabilities: 241 percent of GDP.
  - Gross assets composition: non-FDI- and non-portfolio-related assets account for about 49 percent of gross assets.
  - External debt: about 241 percent of GDP (56 percent accounted for by banks and 30 percent by the public sector) in 2025.
  - Most external debt liabilities are denominated in domestic currency.
  - Average TARGET2 balance in 2025: € -198.0 billion.
- Assessment:
  - NIIP negative but size and stable trajectory do not raise sustainability concerns.
  - Composition-related vulnerabilities: large public external debt (55 percent of GDP in 2025) and banks’ short-term gross financing needs.
- Policy implications:
  - Sustained fiscal adjustment could increase the CA balance but may be partly offset by higher private investment and lower precautionary household savings.
  - Structural reforms to raise productivity, boost innovation, and incentivize private investment would help maintain the external position in line with fundamentals.
  - Deepening the EU single market would strengthen productivity and resilience through scale, internal diversification, and improved risk sharing.
  - Industrial policies should be targeted, coordinated at the EU level, and minimize distortions.

### Selected specific numeric indicators and actions (as reported)
- Fiscal deficit 2025: 5.1 percent of GDP (target 5.4 percent).
- IMF 2025 recommended fiscal structural primary effort: 0.9 percent per year over 2026-2030.
- Public Finance Alert Committee actions: cancelled 3.1 billion in credits (April) and €1.7 billion (June); April 2026 recommendation includes a blank "€  billion" in the source text.
- NIIP 2025: −28.4 percent of GDP.
- Gross Assets 2025: 384 percent of GDP.
- Gross Liab. 2025: 412 percent of GDP.
- Debt Liab. 2025: 241 percent of GDP.
- Average TARGET2 balance 2025: € -198.0 billion.
- CA 2025: -0.3 percent of GDP; projected CA 2026: -0.8 percent of GDP; projected CA 2031: 0.2 percent of GDP.
- Cycl. Adj. CA 2025: -0.3 percent of GDP; EBA Norm: 0.3 percent; EBA Gap: -0.5 percent; Staff Gap: -0.5 percent.
- ULC-based REER appreciation 2025: 3 percent.
- CPI-based REER as of March 2026: 0.3 percent below 2025 average.
- ULC-based REER as of February 2026: 2 percent above 2025 average.
- REER gap assessed at 2.0 percent with a range of ± 1.4 percent; elasticity used: 0.27.
- Insurance Recovery and Resolution Directive: transposition underway; entry into force early 2027.
- Solvency II review/effects and IAIG requirements: liquidity risk management plans and recovery plans to apply in 2027.

*Source: IMF staff report material as provided in the content unit.*

### 2024. Both inward and outward investment increased significantly, by 12.1 and 12.8 percentage points of GDP, respectivel

### 1fraea2026001 - 2024. Both inward and outward investment increased significantly, by 12.1 and 12.8 percentage points of GDP, respectivel

### External Accounts, Investment, FX Intervention and Reserves
- 2024: Both inward and outward investment increased significantly, by 12.1 and 12.8 percentage points of GDP, respectively.
- The financial account is open.
- Background: The euro has the status of a global reserve currency.
- Assessment: Reserves held by the euro area are typically low relative to standard metrics, but the currency is free floating.

### Macro-Financial Vulnerabilities — High-Level Assessment
- Assessment: France remains exposed to financial market risks owing to the large refinancing needs of the sovereign and banking sectors.

### Risk Assessment Matrix — Conjunctural Risks (Findings and Policy Responses)
- Geopolitical and Trade Tensions, Protectionism and Intensification of Conflicts
  - Likelihood: High
  - Impact if Realized: Medium/High — would reduce exports and trade market share, weaken consumer and business confidence, negatively impact consumption and investment, affecting manufacturing and services despite higher expected activity in the defense sector.
  - Policy Response: Further diversify supply chains, including energy mix and sources; undertake structural reforms to boost competitiveness, deepen the European single market and foster capital market integration; maintain a level playing field and limit state intervention to address market failures.
- Commodity Price Volatility
  - Likelihood: High
  - Impact if Realized: Medium/High — sustained increases in hydrocarbon prices would materially impact inflation, undermine households’ purchasing power and increase firms’ costs.
  - Policy Response: Further diversify energy mix and sources; accelerate grid investment; deepen European electricity single market integration; provide targeted, temporary fiscal measures that do not distort energy prices to vulnerable groups, if warranted.
- Disorderly AI Correction
  - Likelihood: High
  - Impact if Realized: Medium — growing exposure of households and investment funds to tech equities is limited but investment fund leverage and international spillovers could magnify impacts.
  - Policy Response: Analyze financial sector interconnections, deepen supervisors’ understanding of investment fund risks and broader financial sector linkages, and increase financial crisis preparedness.
- Fiscal Vulnerabilities and Higher Interest Rates
  - Likelihood: High
  - Impact if Realized: Medium — higher sovereign bond yields would raise refinancing costs over the medium-term, weaken debt dynamics, and reduce fiscal space for growth-enhancing spending; mitigants include France’s liquid debt market, diversified investor base and ECB stabilization.
  - Policy Response: Advance fiscal consolidation under the authorities’ medium-term fiscal structural plan with a comprehensive, credible package of high-quality fiscal measures; complement with structural reforms to support jobs and growth and protect the most vulnerable.

### Risk Assessment Matrix — Domestic Risks (Findings and Policy Responses)
- Domestic Policy Uncertainty
  - Likelihood: High
  - Impact if Realized: Medium/High — political fragmentation and setbacks to fiscal/structural agenda could reduce confidence, weigh on investment and employment, raise refinancing costs, and weaken debt dynamics.
  - Policy Response: Promote broad-based political and social support to advance France’s fiscal plans as per fiscal rules and structural reform agenda, providing targeted support to the most vulnerable.
- Social Discontent
  - Likelihood: Medium
  - Impact if Realized: Medium — could impact confidence and slow growth, delay fiscal adjustment and reform, increase financing costs, and weaken public debt dynamics.
  - Policy Response: Advance structural reform agenda to boost jobs and productivity; provide targeted fiscal support to protect vulnerable groups and mitigate distributional impacts.

### Risk Assessment Matrix — Structural Risks (Findings and Policy Responses)
- Cyberthreats
  - Likelihood: High
  - Impact if Realized: Medium/High — cyberattacks on key infrastructure could disrupt activity and threaten financial stability.
  - Policy Response: Advance crisis preparedness, strengthen coordination at European/international level, and strengthen operational resilience of the financial system.
- Climate Change
  - Likelihood: Medium
  - Impact if Realized: Medium — extreme climate events could disrupt activity and negatively impact growth.
  - Policy Response: Provide targeted fiscal support and public investment for climate preparedness and adaptation, leveraging France’s low emission energy sources to support green transition.
- AI Acceleration
  - Likelihood: Medium
  - Impact if Realized: Medium — France could reap relatively high productivity gains if AI adoption accelerates, but a large share of the workforce could be affected.
  - Policy Response: Promote AI adoption while strengthening preparedness for medium-term labor market effects, including better monitoring and structural reforms to smooth adjustment.

### Sovereign Risk and Debt Sustainability — Background and Key Statistics
- Political fragmentation has limited the authorities’ ability to deliver ambitious frontloading planned under the MTFSP, with the expected average adjustment of 0.7 percent of GDP over 2025–26, below the 1 percent outlined in the MTFSP.
- MTFSP target: bring overall fiscal deficit below 3 percent of GDP by 2029 (authorities’ target; staff projection does not fully capture this).
- Under staff’s baseline:
  - Deficit is projected to increase to 5.2 percent of GDP in 2026 and, absent approval of further measures, remain around 3.5 percent of GDP in the medium-term.
  - Public debt would increase to 121.8 percent of GDP by 2030 before stabilizing thereafter.
- Main fiscal risks: high sensitivity of the debt ratio to future real interest rates and growth, rising spending pressures from priority areas, geopolitical/trade tensions, and domestic policy uncertainty.
- Risk-mitigating factors: France’s fiscal consolidation commitments under EU rules, long debt maturity profile, liquid debt market with diversified investor base and stabilizing role of the ECB.

- 2025 headline fiscal deficit: declined to 5.1 percent of GDP in 2025, from 5.8 percent in 2024.
- Debt ratio increased to 115.7 percent, from 113.2 percent in 2024 — nearly 20 percent of GDP higher than in 2019.
- At end-2025: approximately 45 percent of French public debt (including the Eurosystem, via Banque de France) held by domestic institutional investors; remaining 55 percent owned by international investors across Europe, North America, and Asia.
- The average maturity of France’s public debt stood at approximately  .  years.
- 10-year OAT-Bund spread: peaked above 85 bps in early October 2025, with sovereign credit downgrades by Fitch and S&P from AA- to A+, before narrowing to around 55 bps after adoption of the 2026 budget in February; as global volatility resurfaced in March, the spread widened again to around 75 bps, with yields rising to 3.7 percent amid a generalized rise in global bond yields.

### Sovereign DSA — Baseline Projections, Assumptions and Risks
- Baseline incorporates 2026 budget and measures in sectoral and medium-term programming laws, with a 0.5 percent of GDP structural primary adjustment broadly consistent with minimum required under EU fiscal framework.
- Under staff’s baseline:
  - Fiscal deficit projected at 5.2 percent of GDP in 2026 and around 3.5 percent of GDP by 2031.
  - Debt ratio projected to increase from 118.5 percent of GDP in 2026 to 121.8 percent of GDP by 2030 and then slightly decline to 120.6 percent by 2035.
  - Differential between effective real rate and real GDP growth initially negative but progressively increases and turns positive over next 10 years, insufficient to prevent increase in debt ratio.
  - Interest rate burden increases by 1½ percentage points of GDP over the same horizon.
- Baseline subject to implementation risks due to yet-to-be-identified fiscal measures and macroeconomic uncertainty.

- Realism of medium-term projections: staff’s past projections show some optimism; realized values for the primary deficit and the r-g differentials larger than initially projected over the medium term. Persistently high deficits and higher interest payments are the key future drivers of debt accumulation.

- Risks and mitigating factors: Debt evolution highly sensitive to future real interest rates and real growth; prolonged uncertainty from geopolitical/trade tensions, commodity price volatility, and domestic policy uncertainty could worsen outlook. Baseline does not fully consider consolidations planned under MTFSP; MTFSP fiscal trajectory targeted below 3 percent by 2029 would reduce medium-term risk signals. Large investor base, liquid market and extended maturity profile help mitigate refinancing and short-term market volatility risks.

### Growth and Distributional Implications of Fiscal Consolidation (Annex VII) — Findings and Policy Guidance
- Objective: Examine how composition of fiscal consolidation affects macro costs and distributional incidence across income distribution using a Heterogeneous Agent New Keynesian (HANK) model.
- Key qualitative findings:
  - Absent fiscal adjustment, growth would follow a lower-quality, unsustainable path with private investment subdued and public debt on upward trajectory; elevated debt risks crowd out growth-enhancing investment.
  - Well‑designed fiscal consolidation that is also structural can be a lower-quality path while mitigating growth and distributional effects: consumption and GDP growth decline temporarily relative to unchanged policies before recovering; impact on low‑income households is more contained if targeted support offsets reductions in untargeted transfers.
  - Structural reforms (raising employment and productivity) generate additional medium-term gains in output and debt reduction and strengthen the protective role of well-targeted social policies.
- Policy recommendations on composition:
  - Shift from across-the-board measures toward better-targeted social transfers to support consolidation while protecting household incomes.
  - Savings in insurance‑based transfers (benefits linked to prior earnings or contributions, including unemployment insurance and contributory pensions) are central to durable consolidation.
  - Avoid reliance on assistance‑based untargeted support (broad lump-sum or near-universal measures) as they tend to be less efficient and can be rationalized.
  - Increase targeted transfers focused on low‑income households (minimum‑income and in‑work benefits and housing support) to provide protection and improve efficiency and equity of adjustment.
- Model-based scenario notes (recommended scenario vs unchanged policies baseline):
  - Revenue measures contribute an average of 0.1 percent of GDP per year in 2027–31, split equally between labor taxes and corporate taxes.
  - Remaining adjustment is expenditure-led and allocated as: government consumption restraint (10 percent), cuts to insurance-based transfers (45 percent), and cuts to untargeted assistance-based transfers (50 percent), partly offset by an increase in targeted transfers (5 percent).
  - Structural policies contribute 0.1 to TFP growth in the first year of the adjustment and 0.2 onwards.
  - Improving composition of consolidation raises cumulative GDP by  .  percent relative to a low‑quality package.

*Source: IMF staff report content as provided in the supplied PDF excerpt.*

### 5. By contrast, a revenue-based adjustment would entail higher macroeconomic costs

### 5. By contrast, a revenue-based adjustment would entail higher macroeconomic costs

### Macroeconomic impact of revenue-heavy consolidation
- Under an alternative scenario with the same consolidation envelope but greater reliance on labor and corporate taxes:
  - GDP growth is about 0.2 percentage point lower per year over the consolidation period.
  - The level of GDP is roughly 0.9 percent below the no‑adjustment counterfactual by 2031.
- Overall assessment:
  - Compared with a predominantly spending‑based strategy, the revenue‑heavy alternative worsens the growth–equity trade‑off, amplifying output losses without improving distributional outcomes for poorer households.
- Model caveat:
  - The model does not capture potential capital and tax flight to other jurisdictions.

### Distributional effects
- Under the revenue‑heavy alternative (calibrated to match the same annual fiscal effort and upfront low‑income distributional impact as the expenditure-driven benchmark):
  - Middle‑income households experience consumption declines broadly similar to those under the recommended package.
  - Low‑income households fare worse over the medium term due to less effective protection at the bottom—despite a comparable upfront impact.
  - High‑income households end up faring worse because of a higher tax burden at the top.
- Conclusion:
  - The revenue‑heavy alternative produces larger output losses and a less favorable distributional profile compared with the expenditure‑driven consolidation.

### Climate risks, mitigation, and transition policy (Annex VIII)
- Macro risks from climate change:
  - Climate change poses macro‑critical risks to France’s economy through rising natural hazards that threaten infrastructure, productivity, and public finances.
  - The green transition, if untimely or disorderly, can entail significant economic costs, heightened uncertainty, and financial stability risks.
  - Managing these risks requires sizable, and sustained, investment across energy, transport, buildings, and industry (IMF WP/26/46).
  - France’s low‑carbon electricity mix, anchored in nuclear power, supports its transition strategy.
- Emissions progress and pricing:
  - By 2023, economy‑wide emissions were about 22 percent below their level a decade earlier.
  - Sectoral declines from a decade earlier: mining down 84 percent; power down 35 percent; manufacturing down 25 percent (despite some increase in import‑related emissions).
  - From 2018 to 2023, explicit carbon prices increased sharply in the electricity and industrial sectors, and overall effective carbon rates, including fuel excise taxes, remained high relative to other large emitters.
- Strategy and targets:
  - France’s climate strategy integrates mitigation, adaptation, and energy security objectives.
  - The 2025 National Low‑Carbon Strategy (SNBC3) "raises the gross G G reduction target to    percent below      levels and France’s contribution to the EU Fit‑for‑55 path, with planned removals over 2023–30 accounting for around 30 percent of the EU total." (text preserved verbatim)
  - The National Adaptation Plan for Climate Change (PNACC3) complements mitigation and biodiversity protection efforts.
  - Increased nuclear generation aims to strengthen energy security while supporting decarbonization.
- Electrification plan:
  - The electrification plan prioritizes electrification of heating, transportation, industrial processes and equipment through a coordinated package of 22 measures.
  - The plan combines targeted financial support, regulatory measures, and infrastructure expansion, with around € .  billion per year in additional financing to support uptake of technologies such as EVs, heat pumps, and electrified equipment.
- Recent initiatives and further measures:
  - Authorities updated the green bond governing framework in 2025, with an outstanding issuance of about €92 billion, expanded financing for six new EPR2 nuclear reactors, and reinforced the penalty system for vehicle emissions (SPAFTE; ESFR 2025).
  - Additional efforts aim to mobilize private savings (e.g. Livret A) in support of nuclear investment.
  - Policy recommendations to accelerate the green transition and mitigate its costs:
    - Higher carbon pricing and other revenue‑neutral schemes can complement green spending measures.
    - Recycling revenues via cash transfers could offset the price impact on lower‑income households.
    - Over the medium term, new measures for road transportation, such as distance‑based charges, could also be considered.
    - French banks should continue to mitigate climate transition risks by integrating them into their governance, strategy, and risk management processes.

### Innovation clusters and competitiveness (Annex IX)
- Overview:
  - France’s pôles de compétitivité link firms, research centers, and training organizations to foster collaborative innovation; launched in 2005 and organized around sectoral priorities.
  - Policy evolution: from broad cluster certification to stronger focus on economic outcomes and collaborative EU programs (IPCEI); clusters have extended beyond original regions to allow multi‑regional membership.
- Services and impact:
  - Clusters facilitate access to funding (regional, national including BPI France, and European) and provide services: IP advice, economic intelligence, skills development, business support, and fundraising.
  - According to DGE estimates, public support generates nearly € .  in private R&D for every euro invested (text preserved verbatim).
  - Members experience faster revenue and export growth, with pronounced effects among SMEs.
- Illustrative examples:
  - Dunkerque: Innovative Territory via Dunkerque Creative Energy; supports sustainable industrial transformation; hosts Verkor Gigafactory; strategy to shift toward low‑carbon manufacturing and green jobs; potential large‑scale data center under consideration.
  - Grenoble: Leading hub combining R&D, pilot production, training, and industrialization; hosts Verkor Innovation Centre (VIC), CEA‑Leti, and STMicroelectronics; advances low‑carbon batteries, microchips, and semiconductors with public‑private collaboration and EIB support.
  - Station F (Paris): National hub for tech startups (more than 7,000 to date); primarily private funded; in 2024, Station F companies collectively raised over €  billion in annual funding, representing roughly 15 percent of all startup financing in France (text preserved verbatim).

### Data adequacy for surveillance (Annex X)
- Overall assessment:
  - Staff assess the overall data quality as adequate for the Fund's surveillance.
  - France’s economic and financial statistics are comprehensive, generally of high quality, and are provided to the Fund in a comprehensive manner.
  - Authorities regularly publish a full range of economic and financial data, and a calendar of dates for the main statistical releases.
  - France is subject to Eurostat and ECB statistical requirements and has adopted the European System of Accounts 2010.
  - Some data gaps remain in nascent segments of the NBFI sector; staff judge available financial sector data appropriate for surveillance and assessment of financial stability risks.
- Data adequacy ratings (heatmap summary preserved in content):
  - Median Rating: A across National Accounts, Prices, Government Finance Statistics, External Sector Statistics, Monetary and Financial Statistics, Intersectoral Consistency.
  - Detailed Questionnaire Results indicate A ratings for Coverage, Granularity (various cells), Consistency, Frequency and Timeliness where applicable.
- Other notes:
  - No material changes since the last Article IV consultation.
  - Corrective actions and capacity development priorities: N/A.
  - Staff do not use data and/or estimates different from official statistics.
  - France adheres to the Special Data Dissemination Standard (SDDS) Plus since February 2015 and publishes the data on its National Summary Data Page.

*Source: IMF staff estimates and annexes from the provided content unit.*

### Annex X. Table 3. France: Table of Common Indicators Required for Surveillance

### Annex X. Table 3. France: Table of Common Indicators Required for Surveillance

### Data provision and dissemination practices
- Exchange Rates
  - Date of Latest Observation: 2026-06-09
  - Date Received: 2026-06-09
  - Frequency of Data/Reporting/Expected Frequency: D / D / D
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities
  - Date of Latest Observation: 2026-05
  - Date Received: 2026-06
  - Frequency of Data/Reporting/Expected Frequency: M / M / M
  - Announced Frequency: M
  - Expected Timeliness: 1W
  - Announced Timeliness: 1M
- Reserve/Base Money
  - Date of Latest Observation: 2026-04
  - Date Received: 2026-05
  - Frequency of Data/Reporting/Expected Frequency: M / M / M
  - Announced Frequency: M
  - Expected Timeliness: 2W
  - Announced Timeliness: 25D
- Broad Money
  - Date of Latest Observation: 2026-04
  - Date Received: 2026-06
  - Frequency of Data/Reporting/Expected Frequency: M / M / M
  - Announced Frequency: M
  - Expected Timeliness: 1M
  - Announced Timeliness: 1M
- Central Bank Balance Sheet
  - Date of Latest Observation: 2026-04
  - Date Received: 2026-05
  - Frequency of Data/Reporting/Expected Frequency: M / M / M
  - Announced Frequency: M
  - Expected Timeliness: 2W
  - Announced Timeliness: 25D
- Consolidated Balance Sheet of the Banking System
  - Date of Latest Observation: 2026-04
  - Date Received: 2026-06
  - Frequency of Data/Reporting/Expected Frequency: M / M / M
  - Announced Frequency: M
  - Expected Timeliness: 1M
  - Announced Timeliness: 1M
- Total assets of other depository corporations
  - Date of Latest Observation: 2026-04
  - Date Received: 2026-06
  - Frequency of Data/Reporting/Expected Frequency: M / M / M
  - Announced Frequency: M
  - Expected Timeliness: 1M
  - Announced Timeliness: 1M
- Interest Rates
  - Date of Latest Observation: 2026-06-09
  - Date Received: 2026-06-09
  - Frequency of Data/Reporting/Expected Frequency: D / D / D
- Consumer Price Index
  - Date of Latest Observation: 2026-05
  - Date Received: 2026-05
  - Frequency of Data/Reporting/Expected Frequency: M / M / M
  - Announced Frequency: M
  - Expected Timeliness: 1M
  - Announced Timeliness: Approximately 13D
- Revenue, Expenditure, Balance and Composition of Financing — General Government
  - Date of Latest Observation: 2025-12
  - Date Received: 2026-05
  - Frequency of Data/Reporting/Expected Frequency: A / A / A
  - Announced Frequency: ...
  - Expected Timeliness: 2Q
- Revenue, Expenditure, Balance and Composition of Financing — Central Government
  - Date of Latest Observation: 2026-04
  - Date Received: 2026-06
  - Frequency of Data/Reporting/Expected Frequency: M / M / M
  - Announced Frequency: M
  - Expected Timeliness: 1M
  - Announced Timeliness: 45D
- Stocks of Central Government and Central Government-Guaranteed Debt
  - Date of Latest Observation: 2026-03
  - Date Received: 2026-05
  - Frequency of Data/Reporting/Expected Frequency: Q / Q / Q
  - Announced Frequency: M
  - Expected Timeliness: 1Q
  - Announced Timeliness: 35D
- Total stock of General Government Debt
  - Date of Latest Observation: 2026-03
  - Date Received: 2026-05
  - Frequency of Data/Reporting/Expected Frequency: Q / Q / Q
  - Announced Frequency: Q
  - Expected Timeliness: 4M
  - Announced Timeliness: 4M
- External Current Account Balance
  - Date of Latest Observation: 2026-04
  - Date Received: 2026-06
  - Frequency of Data/Reporting/Expected Frequency: M / M / Q
  - Announced Frequency: M
  - Expected Timeliness: 1Q
  - Announced Timeliness: 7W
- Exports and Imports of Goods and Services
  - Date of Latest Observation: 2026-04
  - Date Received: 2026-06
  - Frequency of Data/Reporting/Expected Frequency: M / M / M
  - Announced Frequency: M
  - Expected Timeliness: 8W
  - Announced Timeliness: 8W
- GDP/GNP
  - Date of Latest Observation: 2026-03
  - Date Received: 2026-05
  - Frequency of Data/Reporting/Expected Frequency: Q / Q / Q
  - Announced Frequency: Q
  - Expected Timeliness: 1Q
  - Announced Timeliness: 50D
- Gross External Debt
  - Date of Latest Observation: 2025-12
  - Date Received: 2026-04
  - Frequency of Data/Reporting/Expected Frequency: Q / Q / Q
  - Announced Frequency: Q
  - Expected Timeliness: 1Q
  - Announced Timeliness: 3M
- International Investment Position
  - Date of Latest Observation: 2025-12
  - Date Received: 2026-03
  - Frequency of Data/Reporting/Expected Frequency: Q / Q / Q
  - Announced Frequency: Q
  - Expected Timeliness: 1Q
  - Announced Timeliness: 3M

### Economic outlook and macroeconomic conditions
- Growth and activity
  - Output expanded by 0.9 % in 2025.
  - GDP declined by 0.1 % in Q1 2026 after growing by 0.2 % in Q4 2025.
  - Carry-over growth as of Q1 2026 stands at 0.4 %.
  - Authorities’ updated growth forecast for 2026 was revised from 0.9 % to 0.7 % (announced on July 7).
  - INSEE estimate for 2026: 0.7 %.
  - Staff’s projection for 2026: 0.6 %.
- Inflation and prices
  - Inflation (HICP) averaged 0.9 % in 2025.
  - Inflation declined to 2.0 % year-on-year in June 2026.
  - Inflation dynamics: increase from March to May 2026 then decline in June 2026, supported by a sharp fall in energy prices, particularly petroleum products.
  - Long-term inflation expectations remain around 2.0 %.
- Labor market and competitiveness
  - Implementation of the Full Employment Act increased measured unemployment by bringing more Active Solidarity Income (RSA) recipients and young people into the labor force through France Travail.
  - After five quarters, these groups accounted for almost half of the rise in unemployment.
  - Unemployment rate in Q1 2026 remains close to its end-2019 level.
  - Labor productivity recovered most pandemic-related losses in 2025.
  - France continued to gain competitiveness despite the appreciation of the euro in 2025, helped by more moderate private-sector wage growth than in several European partner countries.
- External position and sectoral outlook
  - France has a relatively low dependence on fossil fuels imports.
  - External position remained broadly in line with medium-term fundamentals and desirable policies in 2025.
  - Exports are expected to be supported by the aeronautics sector in 2026.

### Fiscal diagnostic, recent outcomes, and strategy
- Fiscal targets and commitments
  - Authorities committed to the Medium-term Fiscal Structural Plan objective to bring the deficit below 3.0 % of GDP in 2029.
  - Staff’s baseline scenario assumes a structural primary adjustment of 0,5 % of GDP per year (staff notes this is not compatible with a deficit below 3.0 % in 2029).
  - Authorities’ commitment to a deficit below 3.0 % of GDP as soon as 2029 is aligned with the IMF recommended scenario.
- Recent fiscal performance and measures
  - 2025 deficit declined to 5,1 % instead of the 5,4 % initially planned.
  - The 2025 Budget Law and the 2025 Social Security Financing Act laid foundations for fiscal consolidation.
  - Under the March 2025 Action Plan, a “Circle of Forecasters” and a “Public Finance Alert Committee” were established in 2025.
  - After first meeting of the Alert Committee: savings measures amounting to EUR 5 billion deployed across central government and social security.
  - After second meeting: additional expenditure restraint measures totaling EUR 3 billion for the central government and EUR 1.7 billion for ONDAM.
- 2026 fiscal stance and shock response
  - Fiscal packages adopted for 2026 target a public deficit of 5.0 % of GDP.
  - Estimated total impact of the energy shock on the 2026 deficit (as of April): EUR 6 billion for 2026 — mainly from downgraded macroeconomic environment.
  - Temporary and targeted support measures introduced with estimated fiscal cost: EUR 1.4 billion.
  - Public Finance Alert Committee (21 April 2026) announced EUR 6 billion of precautionary measures to offset the impact of the crisis.
  - Measures include cancellation decree measures, spending freeze measures, and reductions in social security contributions adopted through secondary legislation.
  - Authorities announced fiscally neutral measures aimed at accelerating electrification.
  - Public Finance Alert Committee reconvened on 7 July 2026 identified new risks of spending overruns and revenue shortfalls amounting to approximately EUR 3 billion across central government and social security sectors.
  - In parallel, EUR 3 billion savings to offset these risks have been announced.
- Budget preparation and medium-term strategy
  - Discussions ongoing for the 2027 budget with objective of securing broad political support.
  - Preparation builds on improved communication with Parliament via the Alert Committee and measures to strengthen transparency and risk communication under the March 2025 Action Plan.
  - Authorities committed to identifying savings through spending reviews under high-level political leadership.
  - An independent review of public finances led by four experts was launched on May 27 (objectives: (i) assess outlook for public finance between 2027 and 2030; (ii) propose options for fiscal consolidation beginning in 2027).

### Structural strengths and reforms
- Structural fundamentals
  - Skilled workforce, diversified economy, high-quality infrastructure.
  - Largely low-carbon energy mix supported by improved nuclear fleet availability, enhancing energy security.
- Structural reform orientation
  - Measures to accelerate electrification noted as fiscally neutral and aimed at reducing reliance on fossil fuels and exposure to international crises.
  - Social Security Financing Act for 2026 sets a lower growth path for ONDAM by limiting duration of prescribed sick leave, improving efficiency of healthcare institutions, and introducing additional regulatory measures for health products, including pharmaceuticals and medical devices.
  - Revenue-side action: reinforcement against tax avoidance and aggressive tax planning.

*Annex X. Table 3. France: Table of Common Indicators Required for Surveillance; As of June 9, 2026; France Staff Report for the 2026 Article IV Consultation—Informational Annex.*

### Conclusions of the review in July 2026 will inform the preparation of the 2027 budget law.

### 1fraea2026001 - Conclusions of the review in July 2026 will inform the preparation of the 2027 budget law

### Fiscal consolidation and 2027 budget preparation
- Conclusions of the review in July 2026 will inform the preparation of the 2027 budget law.
- Authorities remain strongly committed to fiscal consolidation in line with EU rules and the MTFSP.
- Consolidation strategy priorities:
  - Stronger expenditure control and better-targeted public spending to restore fiscal space and finance key policy priorities.
  - All levels of government and public administration (central, social security, and local authorities) to be involved in the consolidation effort.
  - Deliberate plan to absorb new defense spending within existing fiscal consolidation plans.
- Distributional analysis:
  - Staff’s analysis of the distributional effects of fiscal consolidation is valued as a contribution to the national debate.
- Structural reforms are expected to contribute to fiscal consolidation through avoided social spending and growth support.

### Short-term debt outlook and market conditions
- Short-term risk of sovereign debt distress remains low.
- France’s sovereign debt benefits from a deep and liquid market.

### Structural reform strategy (four-pillar approach)
- Authorities pursue a four-pillar reform strategy broadly aligned with staff recommendations:
  1. Support fiscal consolidation and finance future priorities.
  2. A more efficient labor market and policy.
  3. Strengthening competitiveness, notably through reindustrialization and reinforced strategic autonomy.
  4. Accelerating the green transition to position France as a leading low-carbon energy power.

### Labor market reforms and skills
- Recent and ongoing labor market reforms remain a key priority.
- Recognized reform milestones and measures:
  - Unemployment insurance reforms in 2019, 2023, the November 2024 agreement, and new rules that came into force in 2025.
  - February 2026 addendum to the November 2023 framework agreement.
  - Once fully phased in (from the fourth year onward), the reform is expected to generate annual savings of between EUR 0.6 billion and EUR 0.8 billion.
  - 2025 Full Employment Act and ongoing strengthening of France Travail to support labor force participation, training, and sustainable labor market integration.
  - Focus on young people, seniors, and low-skilled workers; lifelong learning and continuous skills upgrading to adapt the workforce to the digital, AI, and green transitions.
  - Efforts to reduce gender disparities linked to career interruptions or reduced labor market participation associated with childrearing.
  - Skills component of the France 2030 strategy to align education and training with needs of future-oriented strategic sectors.

### Competitiveness, reindustrialization, and innovation
- France confirmed economic attractiveness in 2025, remaining Europe's leading destination for international investment projects for the seventh consecutive year.
- Policy actions and programs:
  - 2026 Simplification Bill aimed at reducing red tape, especially for SMEs.
  - Continued support for deeper European market integration, including the 28th regime.
  - Targeted financing for young, R&D-intensive firms in strategic sectors, notably AI and green technologies.
  - EUR 54 billion France 2030 investment plan.
  - AI strategy in its third phase since 2025.
  - Competitiveness clusters fostering collaborative innovation.
  - 2025 Osez l’IA initiative deployed AI Ambassadors with adoption targets by 2030 of: 100 % of large enterprises, 80 % of SMEs and mid-sized companies, and 50 % of micro-enterprises; 35,000 companies were reached within just nine months.
- Reindustrialization indicators:
  - Recording of more than 470 net industrial site openings between 2022 and 2025.
  - 2023 Green Industry Act reinforced reindustrialization trend.
- Financing challenges:
  - European savings amount to nearly EUR 35 trillion and remain insufficiently mobilized for innovation and growth.
  - Large share of household savings in France invested in liquid, short-term products, limiting long-term financing for European businesses.
  - Implementation of the Savings and Investments Union at EU and national levels is a priority; authorities support the Market Integration and Supervision Package and the Noyer-Kukies report proposals to increase late-stage financing of European companies.

### Green transition and energy policy
- Authorities remain fully engaged in achieving carbon neutrality by 2050.
- France’s current energy profile and targets:
  - Sovereign, abundant, and 95 % decarbonized electricity supply.
  - PPE 3 trajectory: 60 % decarbonized energy by 2030 and 70 % by 2035.
- Strategic actions:
  - Electrification plan of energy uses across all sectors of the economy, ensuring a fair and sustainable transition protecting employment, purchasing power, and territorial cohesion.
  - Continued action on biodiversity protection, sustainable water management, waste reduction and effective waste management, and strengthening natural carbon sinks via sustainable forest and soil management.

### Financial sector resilience and macroprudential policy
- Authorities concur that financial stability risks are contained and the financial sector is resilient, supported by proactive supervisory efforts.
- Banking sector metrics as of end-2025:
  - Liquidity Coverage Ratio of 143.4 %.
  - Net Stable Funding Ratio of 115 %.
- Observations on banking sector:
  - Robust income performance and liquidity positions; diversified business models; limited exposure to sectors most sensitive to fossil fuel prices.
  - Limited exposure to counterparties in Middle East countries involved in the conflict with Iran.
  - Credit risk for corporates and households tends to increase slightly, but banks post significantly improved results and maintain a strong position in terms of solvency and liquidity.
  - Limited exposure of the French banking sector to the private credit market.
- Macroprudential framework and decisions:
  - HCSF review confirmed appropriateness of existing macroprudential framework and broadened objectives to include prevention of sharp credit contractions alongside curbing excessive credit growth, expanding risk coverage, and strengthening communication and transparency.
  - On June 9, the HCSF maintained the countercyclical capital buffer at 1 %.
  - Use of the flexibility margin under the housing loan standard stood at 17.5 %, illustrating ownership by banks of the norm and its flexibility.
- Interconnectedness, investment funds, and stress testing:
  - Vulnerabilities to overvaluation risks, including from an AI market correction, are mitigated by the small size of the investment fund sector and moderate exposure to US equities.
  - Rising interconnectedness between banks and non-bank financial intermediaries, including through bank-funded leverage in private credit vehicles, calls for more systematic analysis of contagion risks and greater data availability and sharing.
  - Banque de France, ACPR, and AMF are conducting the first French system-wide stress test; interim methodological report was published on 17 June 2026 and final results expected in October 2026.
  - Authorities would welcome a similar system-wide exercise at the European level, including with respect to private credit.

### Operational resilience and cyber preparedness
- Continued efforts to strengthen cyber preparedness are warranted.
- Regulatory and institutional developments:
  - 2025 entry into force of the Digital Operational Resilience Act (DORA) and implementation by supervisory authorities.
  - Groupe de Place Robustesse (GPR) provides a coordination framework for the financial sector’s preparedness for major operational disruptions; secretariat hosted by the Banque de France; membership includes ANSSI, ACPR, AMF, Treasury, and main private-sector financial institutions.
  - GPR has developed crisis management and crisis simulation practice over its 20 years of existence.
  - Since 2023, ACPR established a dedicated cyber crisis protocol for managing sector-wide crises affecting banking and insurance sectors.
  - ACPR, Banque de France and AMF are responsible in France for implementing DORA’s requirement to conduct triennial Threat-Led Penetration Tests (TLPTs).

### Conclusion and international engagement
- France remains committed to multilateral cooperation and advancing the international reform agenda, including promoting fair rules-based trade.
- Through its G7 Presidency, authorities advocated for more balanced, sustainable, and resilient global growth and supported efforts to reduce global imbalances.
- The French authorities thank staff for the reports and policy advice.

*Source: 1fraea2026001 - Conclusions of the review in July 2026 will inform the preparation of the 2027 budget law.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1fraea2026001.pdf_