IMF Executive Board Concludes 2020 Article IV Consultation with France

IMF News, January 19, 2021

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Bibliographic details

• Published: January 19, 2021

Overview and context

• On January 13, 2021, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with France.
• France entered 2020 with a largely closed output gap and falling unemployment but faced long-standing challenges: high public and private debt, sluggish productivity growth, and inequality of opportunities.
• The Covid-19 pandemic triggered a severe health and economic crisis; France was among the most-affected countries globally.
• To contain the virus, the government implemented containment measures including national lockdowns in Spring and Fall 2020.
• GDP contracted by about 19 percent (y-on-y) in the first half of 2020; overall growth is expected to have contracted by around 9 percent for the year.
• Inflation trended down due to the fall in oil prices and decelerating core inflation.
• The financial sector experienced a short period of turbulence in Q1 2020 but has weathered the crisis well, supported by prudential and monetary measures.

Policy response and recovery plan

• Fiscal and financial measures implemented:
  • Expansion of the short-time work scheme.
  • Grants for small firms and self-employed.
  • Public guarantees for bank loans to firms.
• Recovery measures focus on:
  • Green and digital transformation of the economy.
  • Employment support.
  • Boosting firms’ competitiveness.
• Growth in 2021 is forecast at 5½ percent; medium-term output will remain below the pre-crisis trend due to impaired balance sheets and higher unemployment.
• Risks to the forecast are large and dominated by virus dynamics.

Executive Board Assessment — key findings

• Directors agreed with the thrust of the staff appraisal and commended the swift and flexible policy response that supported households and firms and limited the economic burden.
• Directors noted the growth outlook is highly uncertain, with risks tilted somewhat to the downside predominantly from virus-related dynamics.
• Directors commended the recovery plan (Plan de Relance), particularly its job-rich green investment policies.
• Fiscal policy guidance:
  • Maintain appropriate policy support in the near-term, guided by health conditions.
  • As recovery gains traction, make support more targeted to those most affected to facilitate economic restructuring and contain fiscal costs.
  • Develop a credible consolidation plan now to be implemented only once the recovery is solidly underway to put debt on a firm downward path over the medium term.
• Corporate sector and financial stability:
  • Address risks from corporate insolvency; note the spike in corporate debt driven by state-guaranteed loans and the sizeable corporate equity gap.
  • Welcome new equity support initiatives and encourage augmenting or adapting them as needed.
  • Recommend enhancing debt restructuring mechanisms as a complementary measure.
  • Banking sector entered the crisis with comfortable buffers and facilitated credit provision, but bank capital should be closely monitored given potential future corporate defaults and already limited bank profitability.
  • Regulatory flexibility (release of counter-cyclical capital buffer, measures to help banks extend loan moratoria) is welcome but should be temporary and time bound.
  • Broadly maintain macroprudential measures for household and corporate sectors to mitigate buildup of risks.
• Labor market and inclusion:
  • Crisis disproportionately affected lower-skilled workers and the young.
  • Call for policies that boost employment for vulnerable groups and facilitate new work relationships in dynamic sectors.
  • Encourage continued reform agenda to reduce structural unemployment and increase labor force participation, particularly of youths, over the medium term.
• Climate and green policy:
  • As recovery strengthens, continue implementing green policies consistent with Paris Climate Agreement commitments and European initiatives, including strengthening carbon pricing.

Selected economic indicators and projections (2018-21)

• Real economy (change in percent)
  • Real GDP: 1.8 (2018); 1.5 (2019); -9.0 (2020); 5.5 (2021)
  • Domestic demand: 1.4 (2018); 1.7 (2019); -7.4 (2020)
  • Foreign balance (contr. to GDP growth): 0.4 (2018); -0.2 (2019); -1.6 (2020); -0.1 (2021)
  • CPI (year average): 2.1 (2018); 1.3 (2019); 0.5 (2020); 0.7 (2021)
  • GDP deflator: 1.0 (2018); 1.2 (2019); 2.3 (2020); 0.3 (2021)
• Public finance (percent of GDP)
  • General government balance: -2.3 (2018); -3.0 (2019); -10.6 (2020); -7.7 (2021)
  • Revenue: 53.4 (2018); 52.6 (2019); 52.7 (2020)
  • Expenditure: 55.7 (2018); 55.6 (2019); 63.2 (2020); 60.3 (2021)
  • Primary balance: -0.7 (2018); -9.3 (2019); -6.5 (2020)
  • Structural balance (percent of pot. GDP): -1.7 (2018); -2.0 (2019); -3.8 (2020); -4.7 (2021)
  • General government gross debt: 98.1 (2018); 115.3 (2019); 117.6 (2020)
• Labor market (percent change)
  • Employment: 0.6 (2018); -1.3 (2019); -1.0 (2020)
  • Labor force: 0.2 (2018); 0.0 (2019); 0.9 (2020)
  • Unemployment rate (percent): 9.0 (2018); 8.5 (2019); 8.7 (2020); 10.4 (2021)
• Credit and interest rates (percent)
  • Growth of credit to the private non-financial sector: 5.3 (2018); 8.0 (2019); 3.4 (2020)
  • Money market rate (Euro area): -0.4 (2018); ...
  • Government bond yield, 10-year: 0.8 (2018); 0.1 (2019)
• Balance of payments (percent of GDP)
  • Current account: -0.6 (2018); -2.1 (2019)
  • Trade balance of goods and services: -1.8 (2018)
  • Exports of goods and services: 33.0 (2018); 32.8 (2019); 28.0 (2020); 27.2 (2021)
  • Imports of goods and services: -34.0 (2018); -33.9 (2019); -29.8 (2020); -28.9 (2021)
  • FDI (net): 2.4 (2018)
  • Official reserves (US$ billion): 66.1 (2018); 69.7 (2019)
• Exchange rates
  • Euro per U.S. dollar, period average: 0.85 (2018); 0.89 (2019)
  • NEER, ULC-styled (2005=100, +=appreciation): 98.2 (2018); 97.1 (2019)
  • REER, ULC-based (2005=100, +=appreciation): 92.6 (2018); 90.4 (2019)
• Potential output and output gap
  • Potential output (change in percent): -4.3 (2018); 4.0 (2019)
  • Memo: per working age person: 1.1 (2018); -4.2 (2019); 4.1 (2020)
  • Output gap: -0.5 (2018); -4.9 (2019); -3.6 (2020)

IMF Press Release No. 21/14 — IMF Executive Board Concludes 2020 Article IV Consultation with France (January 19, 2021).

References

• https://www.imf.org/-/media/images/imf/bios/imfboard.jpg
• The Executive Board
• IMF COVID-19 Hub
• Policy Tracker
• Financial Assistance
• Questions & Answers
• France and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• http://www.imf.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home