IMF Executive Board Concludes 2024 Article IV Consultation with France
IMF News, July 13, 2024
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- Published: July 13, 2024
Economic performance and recent shocks
- A strong and timely policy response cushioned the impact of the COVID19 pandemic and the energy crisis resulting from Russia’s war in Ukraine.
- Despite a recovery slowdown in 2023, the French economy remained relatively resilient amid financial tightening and weaker euro area external demand.
- Real GDP grew by 1.1 percent in 2023, supported by net exports; investment surprised on the downside and consumption remained weak.
- Inflation continued to decline since its peak in early 2023, with volatility from the unwinding of energy support measures and delayed wage adjustments.
Public finances and fiscal stance
- The crisis response and slower‑than‑expected recovery weighed on public finances, reducing fiscal space at a time of rising investment needs for the green and digital transformation.
- Fiscal deficit in 2023 was 5.5 percent of GDP, exceeding the authorities’ budget plans as revenues fell short.
- The 2024 budget envisaged sizable consolidation aided by unwinding purchasing power measures while making space for new spending in critical areas; the 2024 budget target was revised to 5.1 percent of GDP given the 2023 underperformance and weaker recovery.
- Executive Directors emphasized the need to identify a well‑specified and credible package of measures to underpin fiscal consolidation plans and called for substantial additional efforts to bring the deficit below 3 percent of GDP by 2027 and to set debt on a downward trajectory.
- Directors recommended fiscal consolidation focus on rationalizing current spending while preserving room for growth‑friendly investment.
Labor market, pensions, and structural reforms
- Reforms of the pension and unemployment benefit systems have started to yield results.
- Labor market performance remained robust, although labor productivity remains below its pre‑COVID trend.
- Directors supported continuing structural reforms to support jobs and raise productivity, including:
- promoting longer and less fragmented careers;
- advancing education and training reforms to prepare workers for the green and digital transformations;
- revamping parental leave and supporting provision of childcare facilities to further boost labor force participation by women.
Financial sector resilience and risks
- The French banking system has remained resilient, with adequate capital and liquidity buffers despite a compression in net interest margins.
- Directors welcomed supervisors’ reliance on prudent lending standards, the higher countercyclical buffer, and the systemic risk buffer against highly indebted firms.
- Directors called for continued monitoring of vulnerabilities in real estate investment funds.
- They supported efforts to integrate climate transition risk into banks’ governance, strategy, and risk management processes.
Climate policy and green transition
- Directors commended significant progress towards reducing greenhouse gas emissions but noted the need for further efforts to meet key mitigation targets.
- They recommended complementing ongoing spending efforts with revenue‑neutral schemes and higher carbon pricing, with revenues recycled to minimize distributional impacts.
EU integration, industrial policy, and multilateral engagement
- Directors emphasized safeguarding and deepening the single market amid geopolitical and economic transitions.
- They welcomed efforts to address France’s structural growth challenges while enhancing capital market integration and efficient investment allocation at the EU level.
- Directors cautioned that industrial policies to support critical industries should be pursued cautiously and coordinated closely at the EU level.
- Directors commended France for its leadership in multilateral cooperation and looked forward to continued leadership in addressing global challenges.
Outlook and risks
- Growth is projected to gradually reach 1.3 percent by 2025 from 0.9 percent in 2024.
- Headline inflation expected to reach 2.3 percent in 2024 and return to target in the first half of 2025.
- Over the medium term, growth is projected to converge towards its potential rate of 1.3 percent.
- The outlook is subject to high uncertainty:
- Downside risks: political fragmentation and policy uncertainty domestically (which could delay fiscal consolidation and reform efforts), escalating geopolitical tensions, and an abrupt global slowdown in key trading partners.
- Upside scenario: faster reform momentum in France and at the EU level could mitigate risks.
Executive Board Assessment — key messages
- Directors noted France’s resilience and welcomed the gradual recovery.
- They recognized that crisis response and slower growth reduced fiscal space amid rising investment needs and agreed with the shift towards rebuilding fiscal buffers and achieving a sustainable modernization of the economy.
- Emphasis on a well‑specified, credible fiscal consolidation package to lower the deficit and place debt on a downward path.
- Support for maintaining resilient banking supervision, monitoring nonbank vulnerabilities, integrating climate risk into financial oversight.
- Strong encouragement to continue structural reforms to raise productivity and labor force participation, and to coordinate industrial policies at the EU level.
Key statistics and projections (selected, as reported)
- Real GDP: 6.8 (2021), 2.6 (2022), 1.1 (2023), 0.9 (2024), 1.3 (2025), 1.5 (2026)
- Domestic demand: 6.0 (2021), 2.9 (2022), 0.6 (2023), 0.3 (2024), 1.2 (2025)
- Foreign balance (contribution to GDP growth): 0.7 (2021), -0.3 (2022), 0.5 (2023), 0.1 (2024)
- CPI (year average): 2.1 (2021), 5.9 (2022), 5.7 (2023), 2.3 (2024), 1.8 (2025)
- GDP deflator: 3.2 (2021), 5.1 (2022), 2.0 (2023), 1.9 (2024)
- General government balance (percent of GDP): -6.6 (2021), -4.7 (2022), -5.5 (2023), -5.2 (2024), -5.0 (2025), -4.6 (2026)
- Revenue (percent of GDP): 52.9 (2021), 53.7 (2022), 51.5 (2023), 51.4 (2024)
- Expenditure (percent of GDP): 59.5 (2021), 58.4 (2022), 57.0 (2023), 56.7 (2024), 56.4 (2025), 56.0 (2026)
- Primary balance (percent of GDP): -2.9 (2021), -3.7 (2022), -3.4 (2023), -3.0 (2024), -2.4 (2025)
- Structural balance (percent of potential GDP): -5.1 (2021), -4.1 (2022), -4.9 (2023), -4.8 (2024), -4.3 (2025)
- General government gross debt (percent of GDP): 112.6 (2021), 111.1 (2022), 109.9 (2023), 111.3 (2024), 112.8 (2025), 113.5 (2026)
- Employment (percent change): -0.1 (2021), 0.4 (2022), 0.2 (2023)
- Labor force (percent change): 1.6 (2021), 1.4 (2022), 0.0 (2023)
- Unemployment rate (percent): 7.9 (2021), 7.3 (2022), 7.4 (2023), 7.0 (2024), 6.9 (2025)
- Growth of credit to the private non-financial sector (percent): 4.5 (2021), 3.6 (2022), 3.0 (2023)
- Money market rate (Euro area): -0.5 (2021), 3.3 (2022)
- Government bond yield, 10-year: 1.7 (2021)
- Current account (percent of GDP): -2.0 (2021), -0.7 (2022), -0.4 (2023)
- Trade balance of goods and services (percent of GDP): -1.3 (2021), -3.2 (2022), -1.6 (2023), -0.6 (2024)
- Exports of goods and services (percent of GDP): 31.2 (2021), 36.3 (2022), 34.5 (2023), 34.1 (2024), 33.8 (2025), 33.3 (2026)
- Imports of goods and services (percent of GDP): -32.5 (2021), -39.5 (2022), -36.0 (2023), -34.7 (2024), -34.5 (2025), -33.9 (2026)
- Official reserves (US$ billion): 101.7 (2021), 100.4 (2022)
- Euro per U.S. dollar, period average: 0.82 (2021), 0.95 (2022), 0.92 (2023)
- NEER, ULC-styled (2005=100, +=appreciation): 97.8 (2021), 95.9 (2022), 97.0 (2023)
- REER, ULC-based (2005=100, +=appreciation): 92.8 (2021), 93.3 (2022), 97.1 (2023)
- Potential output (change in percent): 4.2 (2021)
- Output gap: -2.1 (2021), -0.9 (2022)
Press Release No. 24/271 — IMF Communications Department, July 12, 2024