IMF Executive Board Concludes 2018 Article IV Consultation with France
IMF News, July 26, 2018
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- Published: July 26, 2018
Growth outlook and macroeconomic context
- Near-term growth prospects remain favorable, although less buoyant than in 2017.
- Real GDP growth is projected to reach 1.8 percent in 2018 and 1.7 percent in 2019, supported by robust investment and solid consumption.
- The contribution of net exports turned slightly positive in 2017 and the current account deficit shrunk; France’s external position is assessed to be moderately weaker than implied by economic fundamentals and desirable policy settings.
- Job growth has picked up and the unemployment rate has declined to around 9 percent.
- Inflation is expected to reach 1.8 percent in 2018, spurred by energy prices and a gradual increase in core inflation.
- The fiscal deficit fell to 2.6 percent in 2017, below the EDP limit of 3 percent for the first time in a decade, largely driven by the improved macroeconomic outcomes.
Structural reforms and policy actions
- The government has initiated an ambitious reform strategy aimed at addressing structural challenges and bolstering economic resilience.
- Key labor market and tax reforms have been enacted to enhance labor market flexibility and better align labor costs with productivity.
- Upcoming structural reforms target:
- Revamping France’s vocational training and professional development.
- Improving the business environment to bolster employment prospects of low-skilled workers and support competitiveness.
- On fiscal policy, the government aims to reduce the fiscal deficit and debt in the medium term by reforming public spending.
- Authorities have activated macroprudential policies to prevent the buildup of financial imbalances.
Executive Board assessment and risks
- Directors noted a broad-based cyclical recovery and a pick-up in job growth in 2017, supported by structural reform implementation and a favorable global conjuncture.
- Downside risks have risen, notably from trade tensions, geopolitical uncertainty, and other political risks in Europe, which could weigh on investment and growth.
- Directors recommended using the favorable outlook to press ahead with the reform agenda to address:
- High structural unemployment.
- Weak competitiveness.
- High public and private debt burdens.
- Directors welcomed labor code and taxation reforms and supported plans to reform training and apprenticeship systems to reduce structural unemployment and improve job opportunities for disadvantaged groups.
- If reforms do not produce desired effects, Directors recommended reinforcing them with further measures to:
- Increase flexibility in wage setting.
- Reinforce training for young workers.
- Strengthen work incentives in the unemployment benefit system.
- Complementary product market measures are essential; Directors welcomed recent railway sector reform and planned legislation to facilitate business growth, innovation, and employment, and underscored the need to liberalize regulated professions further.
- Directors stressed that putting public debt on a firm downward path requires further efforts to permanently reduce public spending and recommended specifying reform measures early, starting with the 2019 budget.
- Banking sector assessment:
- The banking sector is now stronger and has supported the recovery.
- Vulnerabilities remain, especially related to elevated debt levels in parts of the corporate sector against a backdrop of global interest rate normalization.
- Directors welcomed recent macro-prudential measures and underlined the need for continued monitoring of vulnerabilities and building bank buffers against shocks, including through implementation of ongoing international regulatory changes.
Projections and selected economic indicators (2016–19)
- Real economy (change in percent)
- Real GDP: 2016 = 1.1; 2017 = 2.3; 2018 = 1.8; 2019 = 1.7
- Domestic demand: 2016 = 1.6; 2017 = 2.2; 2018 = 1.3
- Private consumption: 2016 = 2.1; 2017 = 1.0
- Public consumption: 2016 = 1.4; 2017 = 0.8; 2018 = 0.3
- Gross fixed investment: 2016 = 2.8; 2017 = 4.5; 2018 = 2.9; 2019 = 3.0
- Foreign balance (contr. to GDP growth): 2016 = -0.5; 2017 = 0.1; 2018 = 0.4; 2019 = 0.0
- Exports of goods and services: 2016 = 1.5; 2017 = 4.4; 2018 = 4.7
- Imports of goods and services: 2016 = 4.0; 2017 = (blank)
- Nominal GDP (billions of euros): 2016 = 2,229; 2017 = 2,292; 2018 = 2,364; 2019 = 2,441
- CPI (year average): 2016 = 1.2
- GDP deflator: 2016 = 0.5
- Gross national savings (percent of GDP): 2016 = 21.9; 2017 = 22.9; 2018 = 23.0
- Gross domestic investment (percent of GDP): 2016 = 22.7; 2017 = 23.5; 2018 = 23.7
- Public finance (percent of GDP)
- General government balance: 2016 = -3.4; 2017 = -2.6; 2018 = -2.4
- Revenue: 2016 = 53.0; 2017 = 53.8; 2018 = 53.5; 2019 = 52.2
- Expenditure: 2016 = 56.6; 2017 = 56.4; 2018 = 55.9; 2019 = 54.9
- Structural balance (percent of pot. GDP): 2016 = -2.8; 2017 = -2.2; 2018 = -2.7
- Primary balance: 2016 = -1.8; 2017 = -0.9; 2018 = -0.6; 2019 = -0.8
- General government gross debt: 2016 = 96.6; 2017 = 96.8; 2018 = 96.2; 2019 = 95.8
- Labor market (percent change)
- Employment: 2016 = 0.6
- Labor force: 2016 = -0.1
- Unemployment rate (percent): 2016 = 10.1; 2017 = 9.4; 2018 = 8.9; 2019 = 8.5
- Total compensation per employee: 2016 = 2.5
- Credit and interest rates (percent)
- Growth of credit to the private non-financial sector: 2016 = 3.8; 2017 = 5.6
- Money market rate (Euro area): 2016 = -0.3; 2017 = -0.4
- Balance of payments (percent of GDP)
- Current account: 2016 = (blank)
- Trade balance of goods and services: 2016 = -0.7
- (Additional trade and balance figures are listed but appear as fragmented series: 31.7; 32.1; 31.3; 32.3; -32.4; -33.0; -32.3; -33.1)
- FDI (net): 2016 = (blank)
- Official reserves (US$ billion): 2016 = 56.1; 2017 = 54.8
- Exchange rates
- Euro per U.S. dollar, period average: 2016 = 0.90; 2017 = 0.89
- NEER, ULC-styled (2000=100): 2016 = 98.7; 2017 = 100.0
- REER, ULC-based (2000=100): 2016 = 92.3; 2017 = 92.6
- Potential output and output gap
- Potential output (change in percent): 2016 = 0.9
- Output gap: 2016 = -1.0
Policy recommendations (summarized)
- Press ahead with labor market, tax, training, and apprenticeship reforms and monitor them closely for effectiveness.
- If reforms underperform, reinforce with measures to increase wage-setting flexibility, strengthen training for young workers, and improve unemployment benefit work incentives.
- Implement complementary product market reforms, including further liberalization of regulated professions.
- Specify spending-reform measures early (starting with the 2019 budget) to credibly put public debt on a firm downward path and modernize public service provision.
- Continue macroprudential policies, monitor financial vulnerabilities, and build bank buffers against shocks while implementing international regulatory changes.
IMF Executive Board Concludes 2018 Article IV Consultation with France — July 26, 2018
