## IMF Executive Board Concludes the 2017 Article IV Consultation with France

_IMF News, September 21, 2017_

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## Bibliographic details
- Published: September 21, 2017

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### 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).*

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## References

- [The Executive Board](http://www.imf.org/external/np/sec/memdir/eds.aspx)
- [France and the IMF](http://www.imf.org/external/country/FRA/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2017/09/21/pr17364-imf-executive-board-concludes-the-2017-article-iv-consultation-with-france_