Press Release: IMF Executive Board Concludes 2013 Article IV Consultation with France
IMF News, August 5, 2013
Source details
- Canonical URL
- Press Release: IMF Executive Board Concludes 2013 Article IV Consultation with France
Other formats
Bibliographic details
- Published: August 5, 2013
Background
- Context: weakening economic conditions in Europe, sizeable fiscal consolidation, and domestic policy uncertainty.
- 2012 outcome: the French economy "flat lined" in 2012.
- Near-term outlook:
- Economy projected to contract by 0.2 percent in 2013 and to grow by 0.8 percent in 2014.
- Recovery expected to be gradual in the second half of 2013 as economic indicators improved.
- Demand and credit:
- Credit conditions remain supportive.
- Private demand is unencumbered by balance sheet repair issues and likely to respond to improved confidence.
- Structural constraints:
- Growth potential hindered by structural rigidities in labor and product markets.
- Gradual loss of cost competitiveness and export performance noted.
- Sizeable declines in the share of manufacturing production and employment and a narrowing of profit shares in national income.
- Structural reform progress:
- Recent reduction in labor taxes and correction of the labor market toward greater “flexicurity.”
- Reforms given important forward momentum.
Fiscal policy and public finances
- Pace of consolidation:
- 2013 structural adjustment equivalent to 1.8 percent of GDP, on top of 2.2 percent of GDP sustained over the previous two years.
- IMF staff projects fiscal deficit decline from 4.8 percent of GDP in 2012 to 3.9 percent of GDP in 2013.
- Composition of adjustment:
- About 90 percent of the adjustment to date realized through revenue measures.
- IMF staff had suggested a more balanced distribution of the effort (i.e., more expenditure measures).
- Fiscal framework changes:
- Authorities to set and monitor fiscal objectives in terms of the structural deficit to increase stability and reduce procyclicality.
- The Stability Program of April 2013 targets an easing of the pace of adjustment starting in 2014 and a rebalancing of adjustment efforts toward expenditure measures.
Financial sector and stability
- Improvements:
- Financial stability risks have abated considerably.
- Banks have completed deleveraging objectives and strengthened capital and liquidity buffers.
- Remaining concerns:
- Bank profitability remains low.
- French financial system still needs to adapt fully to new international regulations on bank liquidity.
- Continued reliance on wholesale funding in bank funding structures.
- Policy recommendations noted by Directors:
- Continued vigilance given low bank profitability and weak growth prospects.
- Align tax incentives on financial products with regulatory objectives, including by removing tax disincentives against deposits and phasing out regulated interest rates.
- Keep process of convergence toward the Single Supervisory Mechanism and Single Resolution Mechanism on track.
- Commendation for banking reform aligning resolution regime to the EU directive, ring-fencing trading activities, and strengthening the macro-prudential framework.
Executive Board Assessment — findings and policy recommendations
- Overall assessment:
- Directors encouraged by recent improvements in economic indicators and the expected gradual recovery.
- Remaining risks include uncertain euro area prospects.
- Structural reform emphasis:
- Underscored importance of pursuing structural reforms to support recovery of private demand and strengthen competitiveness.
- Welcomed progress on structural reforms, including the reduction in the labor tax wedge and the broad labor market reform of 2013.
- Encouraged follow-up on implementation and broader reforms to improve competitiveness and growth prospects.
- Specific calls:
- Reform pensions to increase labor market participation rather than contribution rates.
- Pursue deeper labor market reforms to increase employment of the young and low-skilled.
- Open product and services markets to greater competition to realize potential growth and employment gains.
- Simplify the regulatory framework and improve labor training mechanisms.
- Fiscal policy views:
- Many Directors saw merit in allowing a smoother pace of adjustment than envisaged in the Stability Program to support the hesitant recovery.
- Many other Directors advised persevering with consolidation plans under the program, noting it already allows automatic stabilizers to operate.
- While welcoming structural deficit targeting, several Directors noted that nominal targets should not be neglected.
- With tax rates already at a very high level, Directors stressed rebalancing fiscal adjustment toward expenditure containment, including in social security and local spending where there is room for improved efficiency.
- Financial system recommendations (summary reiterated):
- Continue adapting to prudential requirements, notably bank funding structures.
- Align tax incentives on financial products with regulatory objectives; remove tax disincentives against deposits; phase out regulated interest rates.
Selected Economic and Social Indicators, 2010–18 (selected entries preserved exactly)
- Real economy (change in percent):
- Real GDP: 2010: 1.7; 2011: 2.0; 2012: 0.0; 2013: -0.2; 2014: 0.8; 2015: 1.5; 2016: 1.8; 2017: 1.9; 2018 (Proj.): (not listed)
- Domestic demand: 2010: -0.9; 2011: -0.5; 2012: 1.1; 2013: 1.3; 2014: 1.6; 2015: 1.6; 2016: 1.6; 2017: 1.6; 2018 (Proj.): (not listed)
- Nominal GDP (billions of euros): 2010: 1937; 2011: 2001; 2012: 2032; 2013: 2061; 2014: 2114; 2015: 2178; 2016: 2251; 2017: 2336; 2018: 2427
- CPI (year average): 2010: 2.1; 2011: 1.4
- Unemployment rate (in percent): 2010: 9.7; 2011: 9.6; 2012: 10.2; 2013: 11.2; 2014: 11.6; 2015: 11.4; 2016: 10.9; 2017: 10.6; 2018: 10.4
- Gross national savings (percent of GDP): 2010: 17.7; 2011: 18.8; 2012: 17.5; 2013: 18.1; 2014: 18.7; 2015: 19.3; 2016: 20.0; 2017: 20.5
- Gross domestic investment (percent of GDP): 2010: 20.8; 2011: 19.8; 2012: 19.1; 2013: 19.4; 2014: 19.5; 2015: 19.7; 2016: 20.3
- Public finance (percent of GDP):
- Central government balance: 2010: -6.3; 2011: -4.4; 2012: -3.9; 2013: -2.8; 2014: -2.4; 2015: -2.0; 2016: -1.5; 2017: -1.1
- General government balance: 2010: -7.1; 2011: -5.3; 2012: -4.8; 2013: -3.5; 2014: -1.9; 2015: -1.0; 2016: -0.8
- Structural balance (percent of potential GDP): 2010: -5.7; 2011: -4.6; 2012: -1.7; 2013: -1.2; 2014: -0.4
- Primary balance: 2010: -2.5; 2011: -1.8; 2012: 0.1; 2013: 0.9; 2014: 1.2
- General government gross debt: 2010: 82.4; 2011: 85.8; 2012: 90.2; 2013: 93.5; 2014: 95.0; 2015: 94.9; 2016: 93.8; 2017: 91.4; 2018: 88.7
- Money and interest rates (in percent):
- Money market rate 1/: 2010: 0.5
- Government bond yield 1/: 2010: 3.1; 2011: 3.3; 2012: 2.5
- Note: 1/ For 2013, average for January-May.
- Balance of payments (in percent of GDP):
- Exports of goods: 2010: 20.2; 2011: 21.2; 2012: 21.5; 2013: 21.1; 2014: 21.0; 2015: 21.4; 2016: 21.6
- Volume growth (in percent): 2010: 9.5; 2011: 5.4; 2012: 2.4; 2013: 4.4; 2014: 4.5; 2015: 4.6; 2016: 0.0? (table entries beyond 2015 not fully enumerated)
- Imports of goods: 2010: 23.0; 2011: 25.0; 2012: 24.1; 2013: 24.0; 2014: 23.7; 2015: 23.5; 2016: 23.4
- Trade balance: 2010: -3.8; 2011: -3.1; 2012: -3.0; 2013: -2.6; 2014: -2.3
- Current account: 2010: -1.3; 2011: -2.2; 2012: -0.7; 2013: 0.4
- FDI (net): (not enumerated in table)
- Official reserves (US$ billion): 2010: 55.8; 2011: 48.6
- Fund position (as of January 31, 2012):
- Holdings of currency (percent of quota): 79.7; 73.1; 70.9
- Holdings of SDRs (percent of allocation): 96.1; 95.5; 94.2
- Quota (SDRs million): 10739
- Exchange rates:
- Euro per U.S. dollar, period average: 2010: 0.75; 2011: 0.72; 2012: 0.78
- Nominal effective rate, ULC-styled (2000=100): 2010: 102.4; 2011: 100.1
- Real effective exchange rate, ULC-based (2000=100): 2010: 104.3; 2011: 105.4; 2012: 104.8
- Potential output and output gap:
- Potential output: 2010: 1.0
- Output gap: 2010: -2.9; 2011: -2.1; 2012: -1.6
- Social indicators (selected):
- Per capita GDP (2006): US$35,471
- Life expectancy at birth (2009): 77.7 (male) and 84.4 (female)
- Poverty rate (mid-2000s): 14.1 percent (60 percent line), 7.1 percent (50 percent line)
- Income distribution (ratio of income received by top and bottom quintiles, 2004): 4.2
Note on the Article IV process
- Under Article IV: the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. The staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion, the Managing Director summarizes views of Executive Directors, and this summary is transmitted to the country's authorities.
Press Release No. 13/295 — August 5, 2013 — IMF Communications Department