Public Information Notice: IMF Executive Board Concludes 2011 Article IV Consultation with France
IMF News, July 27, 2011
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- Published: July 27, 2011
Background — macroeconomic developments and risks
- Growth in 2011 expected to be around 2 percent.
- Unemployment rate remains high at 9½ percent, but employment has been increasing.
- Growth in early 2011 led by robust private consumption and stock-building, and supported by a recovery in investment; net exports have remained lackluster.
- External risks: possible spillovers from lingering euro area sovereign debt problems, and uncertainty about energy prices.
- Fiscal outlook and consolidation:
- Fiscal deficit in 2010 was 7.1 percent (better than foreseen).
- Overall budget deficit targeted to be reduced to 3 percent of GDP by 2013 and 2 percent of GDP by 2014.
- Planned adjustment to be implemented through binding multi-year restrictions on more than three-quarters of central government expenditures and minimum yearly targets for the reduction in tax expenditures.
- Ability to achieve targeted adjustment hinges on pace of economic recovery; more efforts might be needed to achieve the 2012–13 targets if actual growth falls short of authorities’ projections.
- Financial sector:
- French banking sector has overcome most crisis legacies and returned to strong profitability.
- Bank capital remains below some European peers, but is increasing; major French banks should be able to meet the Basel III capital requirements by 2013/14.
- Major banks remain highly reliant on wholesale funding and exposed to peripheral Euro countries.
- Institutional reforms: unification of banking and insurance supervision; inclusion of consumer protection mandates; creation of a national systemic risk board.
- House prices increased rapidly over the past year, but financial stability risks from rapid house price increases seem at this stage contained.
- Labor market and structural challenges:
- France challenged to lift potential growth and reduce unemployment, particularly lack of jobs for young, unskilled, and senior workers.
- Reduction in unemployment in part due to labor market reforms.
- Government programs provide incentives for education and innovation.
- Ongoing efforts to improve competition in product and services markets where progress remains limited.
Executive Board Assessment — priorities and recommendations
- Overall assessment:
- Supportive policy measures and key reforms in the pension system and labor market have underpinned a gradual, more broad-based recovery.
- Consumption robust, investment picked up, and employment is rising.
- Economic outlook favorable but risks tilted to the downside amid the sovereign debt crisis in the euro area and uncertainty about energy and commodity prices.
- Main policy priorities identified:
- Restore fiscal sustainability.
- Safeguard financial sector stability.
- Reduce unemployment.
- Build on momentum of structural reforms to promote competitiveness and inclusive growth.
- Fiscal policy recommendations:
- Credible fiscal consolidation necessary for debt sustainability.
- Consolidation targets in France’s Stability Program and the 2011–14 multi-year budget framework strike the right balance; they are front-loaded and expenditures-based.
- Prepare specific contingency measures in case growth outcomes fall short of expectations.
- Use windfall revenue to accelerate deficit and debt reduction.
- Enact a fiscal rule to signal commitment to fiscal sustainability.
- Use conservative growth forecasts and cap autonomous spending of local governments and social security to enhance credibility of adjustment strategy.
- Encourage deeper reforms of the pension and health care systems, building on recent progress.
- Financial sector recommendations:
- Welcome resilience of French financial system as confirmed by stress tests undertaken by the European Banking Authority.
- Commend authorities for strengthening supervisory arrangements (unification of banking and insurance supervision, consumer protection mandate, national systemic risk board).
- Call for continued vigilance on house prices and readiness to take measures as necessary, including macro-prudential tools.
- Banks should benefit from swiftly raising capital levels, aiming to meet Basel III requirements by 2013/14, ahead of the official implementation period.
- Need for tailored and internationally consistent measures for globally systemic banks, including capital surcharges.
- Welcome France’s active involvement in international debate on financial regulatory reform.
- Structural reform recommendations:
- Press ahead with reforms to boost competitiveness, job creation, and productivity growth.
- Strategy should be multi-pronged and carefully articulated in light of fiscal consolidation.
- Key elements: keep real wage increases in line with productivity improvements; increase labor force participation; foster competition in the service sector.
- Reduce high structural unemployment via targeted job search support, training opportunities, and modernization of the tax and benefit systems.
Selected economic and social indicators (key figures and projections)
- Real economy (change in percent)
- Real GDP: -0.2 (2008), -2.6 (2009), 1.4 (2010), 2.1 (2011), 1.9 (2012), 2.0 (2013)
- Domestic demand: 0.1 (2008), -2.4 (2009), 1.3 (2010), 2.2 (2011), 1.7 (2012)
- CPI (year average): 3.2 (2008), 1.8 (2009), (other years not listed)
- Unemployment rate (in percent): 7.8 (2008), 9.5 (2009), 9.7 (2010), 9.3 (2011), 8.8 (2012), 8.6 (2013), 8.2 (2014), 7.9 (2015)
- Savings and investment (percent of GDP)
- Gross national savings: 20.1 (2008), 17.5 (2009), 18.6 (2010), 19.2 (2011), 19.5 (2012), 19.7 (2013), 20.0 (2014), 20.2 (2015)
- Gross domestic investment: 21.9 (2008), 19.0 (2009), 20.4 (2010), 20.8 (2011), 21.2 (2012), 21.4 (2013), 21.5 (2014), 21.8 (2015), 22.0 (2016)
- Public finance (percent of GDP)
- Central government balance: -3.3 (2008), -6.2 (2009), -6.3 (2010), -4.4 (2011), -3.8 (2012), -3.0 (2013), -2.5 (2014), -1.8 (2015), -1.2 (2016)
- General government balance: -7.5 (2008), -7.1 (2009), -5.7 (2010), -4.8 (2011), -2.9 (2012), -2.0 (2013), -1.1 (2014)
- Structural balance (percent of potential GDP): -4.6 (2008), -3.9 (2009), -2.2 (2010), -1.6 (2011), -1.0 (2012)
- Primary balance: -0.6 (2008), -5.3 (2009), -4.9 (2010), -3.1 (2011), -0.9 (2012), 1.2 (2013)
- General government gross debt 1/: 68.2 (2008), 79.0 (2009), 82.3 (2010), 85.2 (2011), 87.2 (2012), 88.1 (2013), 87.8 (2014), 86.5 (2015), 84.4 (2016)
- Money and interest rates (in percent)
- Money market rate: 3.8 (2008), 1.0 (2009), 0.8 (2010)
- Government bond yield: 4.2 (2008), 3.6 (2009), 3.1 (2010)
- External sector (in percent of GDP and volume growth)
- Exports of goods: 21.3 (2008), 18.1 (2009), 22.6 (2010), 23.0 (2011), 22.9 (2012)
- Volume growth (exports): -12.2 (2008), 9.4 (2009), 6.4 (2010), 4.6 (2011), 3.9 (2012)
- Imports of goods: 24.3 (2008), 25.8 (2009), 26.0 (2010), 25.9 (2011)
- Volume growth (imports): 0.6, -10.6, 8.3, 6.5, 3.7 (years/labels as in source table)
- Trade balance: -2.3 (2008), -2.8 (2009)
- Current account: -1.7 (2008), -1.5 (2009), -2.1 (2010), -1.9 (2011)
- FDI (net): -3.2 (2008), -1.4 (2009)
- Reserves and Fund position
- Official reserves (US$ billion): 33.6 (2008), 46.6 (2009)
- Holdings of currency (percent of quota): 86.3, 80.8, 79.7, 73.1 (as of April 30, 2011)
- Holdings of SDRs (percent of allocation): 58.1, 95.9, 96.1
- Quota (SDRs million): 10739
- Exchange rates and competitiveness indices
- Euro per U.S. dollar, period average 1/: 0.68 (2008), 0.72 (2009), 0.75 (2010), 0.70 (2011)
- Nominal effective rate, ULC-styled (2000=100) 1/: 113.8 (2008), 113.7 (2009), 110.4 (2010), 111.2 (2011)
- Real effective exchange rate, ULC-based (2000=100): 113.9 (2008), 115.2 (2009), 109.8 (2010), 111.5 (2011)
- Potential output and output gap
- Potential output: 1.1 (2008), 1.5 (2009), 1.6 (2010)
- Output gap: -0.7 (2008), -4.2 (2009), -3.6 (2010), -2.7 (2011), -0.4 (2012), 0.0 (2013)
- Social indicators
- Per capita GDP (2006): US$35,471
- Life expectancy at birth (2006): 77.2 (male) and 84.1 (female)
- Poverty rate (2005): 12.1 percent (60 percent line), 6.3 percent (50 percent line)
- Income distribution (ratio of income received by top and bottom quintiles, 2004): 4.2
Public Information Notice (PIN) No. 11/99; July 27, 2011.