IMF Executive Board Concludes 2022 Article IV Consultation with France
IMF News, January 30, 2023
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- Published: January 30, 2023
Overview
- Executive Board concluded the Article IV consultation with France on January 25, 2023.
- France saw a robust recovery from the Covid-19 shock: output rebounded by 6.8 percent in 2021 and recovered to pre-crisis levels.
- The recovery was broad-based and faster than in most other European countries.
- Russia’s war in Ukraine is damping the recovery by denting confidence and exacerbating supply-side difficulties; France is less directly exposed to the energy shock.
- Staff expect growth of 2.6 percent for 2022 and project growth of 0.7 percent in 2023.
- Inflation has surged over the past year, driven by supply chain bottlenecks and the energy price shock, but remains well-below peers thanks to energy price controls and subsidies.
Economic outlook, projections, and risks
- Staff projections:
- Growth: 2.6 percent for 2022; 0.7 percent for 2023.
- Over the medium-term, output will grow near potential but scarring will leave output some 2 percentage points below the pre-pandemic trend.
- Inflation:
- Has surged in the past year; will remain persistent over the next two years as price controls ease.
- Near-term risks (tilted to the downside):
- A prolonged war and an escalation of sanctions and a further spike in gas and electricity prices.
- Faster-than-expect monetary policy adjustments in Europe or elsewhere.
- A deeper slowdown in the US or China.
Fiscal response, assessment, and recommendations
- Fiscal response to the energy price shock:
- Support totaling 2 percent of GDP in 2021-22.
- Measures centered on households and largely channeled through untargeted energy price measures and cash transfers.
- For 2023: the price cap is raised by 15 percent—with poorer households compensated upfront through cash transfers.
- A more targeted fuel voucher (“chèque carburant”) for households earning up to median income replaces the fuel subsidy (“remise carburant”).
- Energy bill support to firms will be scaled up, funded from a new infra-marginal rent tax and solidary contribution from energy producers.
- Executive Directors’ fiscal views:
- Welcomed the effectiveness of the fiscal response in containing the impact on output and inflation but noted its largely untargeted nature pushed up costs and reduced incentives to lower energy consumption.
- Many Directors agreed with staff recommendation for a modest fiscal tightening in 2023, including accelerating the phase-out of energy price controls and better targeting support.
- A number of Directors saw merit in a more gradual adjustment with the exit from price controls conditional on market developments and the policy response at the regional level.
- Directors broadly agreed that a sustained expenditure-led fiscal consolidation over the medium term will be critical to rebuild buffers and bring debt on a firmly downward path while leaving space to accelerate green and digital investment.
- Noted that implementation of the unemployment benefit and pension reform plans could deliver part of the needed adjustment; emphasized need for additional reforms, including to rationalize tax expenditures and enhance spending efficiency.
Labor market and structural reforms
- Labor market:
- Capacity utilization remains below pre-crisis levels, but labor market conditions have further tightened.
- Unemployment rate: 8.4 (2019), 8.0 (2020), 7.9 (2021), 7.5 (2022), 7.6 (2023).
- Directors urged continued action to reduce labor market frictions and increase labor supply.
- Reforms highlighted:
- Recently approved unemployment benefits reform.
- Upcoming pension reform.
- Measures to foster youth employment.
- Policies to improve educational outcomes and alleviate skills mismatches.
Energy transition and climate policy
- The energy crisis presents opportunities to accelerate the green transition.
- Directors underscored urgency of transition to cleaner and more secure energy sources.
- Recommended measures:
- Streamline regulatory and judicial procedures for renewable energy development.
- Increase carbon pricing while providing support for vulnerable households as part of a broader package of climate measures.
Financial sector and stability
- Banking sector:
- Has weathered the crisis soundly.
- Financial stability risks are increasing.
- Risks identified:
- Impact of the economic slowdown on corporate balance sheets.
- Increased credit risk from energy intensive and inflation affected sectors.
- Possible downturn in the housing market.
- Directors supported the authorities’ decision to raise the counter-cyclical buffer to guard against the buildup of financial stability risks, but cautioned that the buffer should be promptly released should there be a sudden deterioration of financial conditions.
Executive Board assessment and governance
- Directors agreed with the thrust of the staff appraisal.
- Noted France’s strong recovery but now facing strong headwinds; inflation will remain persistent as energy price controls ease.
- Commended France’s leadership in multilateral cooperation and looked forward to continued leadership in addressing global challenges.
- Next Article IV consultation with France expected on the standard 12-month cycle.
Key statistics (selected entries from Table 1: France: Selected Economic Indicators, 2019-23)
- Real GDP (change in percent): 1.9 (2019); -7.9 (2020); 6.8 (2021); 2.6 (2022); 0.7 (2023).
- Domestic demand (change in percent): 2.1 (2019); -6.7 (2020); 6.6 (2021); 3.1 (2022); 0.5 (2023).
- Foreign balance (contr. to GDP growth): -0.3 (2019); -1.0 (2020); 0.0 (2021); -0.6 (2022); 0.1 (2023).
- CPI (year average): 1.3 (2019); 5.9 (2020); 5.0 (2021).
- GDP deflator: 1.2 (2019); 2.9 (2020); 3.5 (2021).
- General government balance (percent of GDP): -3.1 (2019); -9.0 (2020); -6.5 (2021); -5.0 (2022); -5.3 (2023).
- Revenue (percent of GDP): 52.3 (2019); 52.5 (2020); 53.5 (2021); 52.8 (2022).
- Expenditure (percent of GDP): 55.4 (2019); 61.5 (2020); 59.1 (2021); 58.4 (2022); 58.1 (2023).
- Primary balance (percent of GDP): -1.7 (2019); -7.8 (2020); -5.2 (2021); -3.2 (2022); -3.7 (2023).
- Structural balance (percent of pot. GDP): -2.1 (2019); -5.8 (2020); -4.4 (2021); -4.5 (2022).
- General government gross debt (percent of GDP): 97.4 (2019); 114.7 (2020); 112.6 (2021); 111.6 (2022); 112.0 (2023).
- Employment (percent change): 0.8 (2019); 1.7 (2020); 0.4 (2021); -0.1 (2022).
- Labor force (percent change): -0.7 (2019); 1.6 (2020).
- Growth of credit to the private non-financial sector (percent): 5.3 (2019); 8.1 (2020); 2.5 (2021); 3.8 (2022); 4.2 (2023).
- Current account (percent of GDP): -1.8 (2019); -1.5 (2020); -1.6 (2021).
- Exports of goods and services (percent of GDP): 32.7 (2019); 28.4 (2020); 31.2 (2021); 39.3 (2022); 40.7 (2023).
- Imports of goods and services (percent of GDP): -33.6 (2019); -30.2 (2020); -32.4 (2021); -41.1 (2022); -42.2 (2023).
- FDI (net): 1.1 (2019); 0.2 (2020).
- Official reserves (US$ billion): 69.7.
- NEER, ULC-styled (2005=100, +=appreciation): 97.1.
- REER, ULC-based (2005=100, +=appreciation): 90.2.
- Potential output (change in percent): 1.0 (2019); -3.3 (2020); 3.7 (2021); 1.5 (2022).
- Memo: per working age person: 4.1.
- Output gap: -4.7 (2019); -1.9 (2020); -0.8 (2021); -1.1 (2022).
Source: IMF, Press Release No. 23/21, January 30, 2023.