IMF Executive Board Concludes the 2017 Article IV Consultation with France
IMF News, September 21, 2017
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- Published: September 21, 2017
Macroeconomic outlook and recent performance
- The recovery is picking up, with real GDP growth projected to reach 1.6 percent this year and 1.8 percent in 2018.
- Growth drivers:
- Buoyant corporate investment.
- Rebound in residential construction.
- Solid consumer demand.
- Dragging factors:
- Net exports have been a drag on growth.
- France’s external position is assessed to be weaker than implied by economic fundamentals.
- Labor market:
- Private sector job creation has begun to accelerate moderately.
- The unemployment rate has begun to recede moderately from its 10 percent post-crisis mark.
- Inflation outlook remains subdued, in line with many other euro area economies.
- Fiscal stance:
- Fiscal consolidation, on a structural basis, has stalled since 2015.
- The public debt ratio is still rising.
- Medium-term constraints on potential growth:
- Modest total factor productivity growth.
- A stagnant working age population.
- High structural unemployment (especially among the young and low-skilled).
- Weak external competitiveness.
Government reform strategy and policy priorities
- The new government’s strategy aims to:
- Make France’s economy more dynamic.
- Make public finances sustainable.
- Fiscal policy focus:
- Rein in public spending to gradually reduce the fiscal deficit while lowering the tax burden.
- Labor market reforms:
- Enhance firm-level flexibility in labor negotiations.
- Revamp unemployment insurance.
- Improve professional training and apprenticeship programs.
- Tax reforms:
- Designed to boost growth, employment, and competitiveness.
Executive Board assessment and recommendations
- Directors welcomed the broad reform agenda and noted an important window of opportunity to:
- Boost growth.
- Reduce unemployment.
- Ensure sustainability of public finances.
- Improve competitiveness.
- Promote inclusiveness and social mobility.
- Key challenge: implementation, especially of the envisaged fiscal strategy and labor market reforms.
- Fiscal recommendations:
- Support for the government’s gradual expenditure-based fiscal consolidation plan aiming for a near-balanced budget over the medium term.
- Success depends on timely specification and implementation of efficiency-oriented expenditure reforms given past fiscal slippages and envisaged tax relief for 2018/19.
- Recommendation to conduct comprehensive spending reviews to identify savings at all levels of government while ensuring adequate social protections.
- Labor market recommendations:
- Welcome for proposed reform of France’s labor laws to enhance enterprise-level flexibility, improve social dialogue, and reduce judicial uncertainty related to dismissals.
- Need for complementary measures to reduce high structural unemployment.
- Support for reforms to unemployment insurance and professional education and apprenticeship systems.
- Recommendation for continued wage moderation.
- Tax and competitiveness recommendations:
- Planned cut in the corporate income tax rate and a further reduction in the labor tax wedge seen as helpful for competitiveness.
- To maximize growth benefits, complement with measures to improve the efficiency of capital taxation by:
- Limiting exemptions.
- Reducing the debt bias.
- Eliminating disincentives to company growth.
- Merit seen in unification of tax rates on interest, dividends, and capital gains, and recommendation to streamline the taxation of long-term savings.
- Financial sector and supervision:
- Financial sector more resilient since the crisis; large banks have buttressed balance sheets and provided adequate financing.
- Banks and insurers need to continue adapting business models to the low interest environment, new technologies, and evolving regulatory standards.
- Supervisors should remain vigilant regarding market risks—including a potential increase in interest rates—and the rise in corporate indebtedness.
France: Selected Economic Indicators, 2015–18 (Projections)
- Real economy (change in percent)
- Real GDP: 2015: 1.1; 2016: 1.2; 2017: 1.6; 2018: 1.8
- Domestic demand: 2015: 1.9; 2016: 1.7
- Private consumption: 2015: 1.4; 2016: 2.2
- Public consumption: 2015: 1.3; 2016: 0.5
- Gross fixed investment: 2015: 1.0; 2016: 2.9; 2017: 3.1
- Foreign balance (contribution to GDP growth)
- 2015: -0.5; 2016: -0.8; 2017: -0.3; 2018: 0.0
- Exports of goods and services: 2015: 4.3; 2016: 3.0; 2017: 3.9
- Imports of goods and services: 2015: 5.7; 2016: 4.2; 2017: 3.5
- Nominal GDP (billions of euros)
- 2015: 2194; 2016: 2229; 2017: 2283; 2018: 2351
- CPI (year average)
- 2015: 0.1; 2016: 0.3
- GDP deflator
- 2015: 0.4; 2016: 0.8
- Gross national savings (percent of GDP)
- 2015: 22.3; 2016: 22.0; 2017: 22.1
- Gross domestic investment (percent of GDP)
- 2015: 22.8; 2016: 23.0; 2017: 23.3
- Public finance (percent of GDP)
- General government balance: 2015: -3.6; 2016: -3.4; 2017: -3.0
- Revenue: 2015: 53.1; 2016: 53.0; 2017: 52.5
- Expenditure: 2015: 56.7; 2016: 56.4; 2017: 56.2; 2018: 55.6
- Structural balance (percent of pot. GDP): 2015: -2.0; 2016: -1.9; 2017: -1.8; 2018: -2.2
- Primary balance: 2015: -1.7; 2016: -1.4
- General government gross debt: 2015: 95.6; 2016: 96.3; 2017: 96.8; 2018: 97.0
- Labor market (percent change)
- Employment: 2015: 0.2; 2016: 0.6; 2017: 0.7
- Labor force: (not specified)
- Unemployment rate (percent): 2015: 10.4; 2016: 10.0; 2017: 9.5; 2018: 9.0
- Total compensation per employee: …
- Credit and interest rates (percent)
- Growth of credit to the private non-financial sector: 2015: 3.2; 2016: 4.1; 2017: 5.2; 2018: 5.8
- Money market rate (Euro area): 2015: -0.2
- Government bond yield, 10-year: (not specified)
- Balance of payments (percent of GDP)
- Exports of goods: 2015: 21.0; 2016: 20.7; 2017: 20.6
- Imports of goods: 2015: -22.1; 2016: -21.9; 2017: -22.4; 2018: -21.7
- Trade balance: 2015: -2.3
- Current account: 2015: -0.4; 2016: -1.0; 2017: -1.1
- FDI (net): 2015: -0.1
- Official reserves (US$ billion): 2015: 55.2; 2016: 56.1
- Exchange rates
- Euro per U.S. dollar, period average: 2015: 0.90
- NEER, ULC-styled (2000=100): 2015: 97.9; 2016: 98.7
- REER, ULC-based (2000=100): 2015: 92.7; 2016: 92.0
- Potential output and output gap
- Output gap: 2015: -2.4; 2016: -1.3
Source: IMF Executive Board Concludes the 2017 Article IV Consultation with France (September 21, 2017).