## IMF Executive Board Concludes 2018 Article IV Consultation with France

_IMF News, July 26, 2018_

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## Bibliographic details
- Published: July 26, 2018

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### Growth outlook and macroeconomic context
- Near-term growth prospects remain favorable, although less buoyant than in 2017.
- Real GDP growth is projected to reach 1.8 percent in 2018 and 1.7 percent in 2019, supported by robust investment and solid consumption.
- The contribution of net exports turned slightly positive in 2017 and the current account deficit shrunk; France’s external position is assessed to be moderately weaker than implied by economic fundamentals and desirable policy settings.
- Job growth has picked up and the unemployment rate has declined to around 9 percent.
- Inflation is expected to reach 1.8 percent in 2018, spurred by energy prices and a gradual increase in core inflation.
- The fiscal deficit fell to 2.6 percent in 2017, below the EDP limit of 3 percent for the first time in a decade, largely driven by the improved macroeconomic outcomes.

### Structural reforms and policy actions
- The government has initiated an ambitious reform strategy aimed at addressing structural challenges and bolstering economic resilience.
- Key labor market and tax reforms have been enacted to enhance labor market flexibility and better align labor costs with productivity.
- Upcoming structural reforms target:
  - Revamping France’s vocational training and professional development.
  - Improving the business environment to bolster employment prospects of low-skilled workers and support competitiveness.
- On fiscal policy, the government aims to reduce the fiscal deficit and debt in the medium term by reforming public spending.
- Authorities have activated macroprudential policies to prevent the buildup of financial imbalances.

### Executive Board assessment and risks
- Directors noted a broad-based cyclical recovery and a pick-up in job growth in 2017, supported by structural reform implementation and a favorable global conjuncture.
- Downside risks have risen, notably from trade tensions, geopolitical uncertainty, and other political risks in Europe, which could weigh on investment and growth.
- Directors recommended using the favorable outlook to press ahead with the reform agenda to address:
  - High structural unemployment.
  - Weak competitiveness.
  - High public and private debt burdens.
- Directors welcomed labor code and taxation reforms and supported plans to reform training and apprenticeship systems to reduce structural unemployment and improve job opportunities for disadvantaged groups.
- If reforms do not produce desired effects, Directors recommended reinforcing them with further measures to:
  - Increase flexibility in wage setting.
  - Reinforce training for young workers.
  - Strengthen work incentives in the unemployment benefit system.
- Complementary product market measures are essential; Directors welcomed recent railway sector reform and planned legislation to facilitate business growth, innovation, and employment, and underscored the need to liberalize regulated professions further.
- Directors stressed that putting public debt on a firm downward path requires further efforts to permanently reduce public spending and recommended specifying reform measures early, starting with the 2019 budget.
- Banking sector assessment:
  - The banking sector is now stronger and has supported the recovery.
  - Vulnerabilities remain, especially related to elevated debt levels in parts of the corporate sector against a backdrop of global interest rate normalization.
  - Directors welcomed recent macro-prudential measures and underlined the need for continued monitoring of vulnerabilities and building bank buffers against shocks, including through implementation of ongoing international regulatory changes.

### Projections and selected economic indicators (2016–19)
- Real economy (change in percent)
  - Real GDP: 2016 = 1.1; 2017 = 2.3; 2018 = 1.8; 2019 = 1.7
  - Domestic demand: 2016 = 1.6; 2017 = 2.2; 2018 = 1.3
  - Private consumption: 2016 = 2.1; 2017 = 1.0
  - Public consumption: 2016 = 1.4; 2017 = 0.8; 2018 = 0.3
  - Gross fixed investment: 2016 = 2.8; 2017 = 4.5; 2018 = 2.9; 2019 = 3.0
  - Foreign balance (contr. to GDP growth): 2016 = -0.5; 2017 = 0.1; 2018 = 0.4; 2019 = 0.0
  - Exports of goods and services: 2016 = 1.5; 2017 = 4.4; 2018 = 4.7
  - Imports of goods and services: 2016 = 4.0; 2017 = (blank)
- Nominal GDP (billions of euros): 2016 = 2,229; 2017 = 2,292; 2018 = 2,364; 2019 = 2,441
- CPI (year average): 2016 = 1.2
- GDP deflator: 2016 = 0.5
- Gross national savings (percent of GDP): 2016 = 21.9; 2017 = 22.9; 2018 = 23.0
- Gross domestic investment (percent of GDP): 2016 = 22.7; 2017 = 23.5; 2018 = 23.7
- Public finance (percent of GDP)
  - General government balance: 2016 = -3.4; 2017 = -2.6; 2018 = -2.4
  - Revenue: 2016 = 53.0; 2017 = 53.8; 2018 = 53.5; 2019 = 52.2
  - Expenditure: 2016 = 56.6; 2017 = 56.4; 2018 = 55.9; 2019 = 54.9
  - Structural balance (percent of pot. GDP): 2016 = -2.8; 2017 = -2.2; 2018 = -2.7
  - Primary balance: 2016 = -1.8; 2017 = -0.9; 2018 = -0.6; 2019 = -0.8
  - General government gross debt: 2016 = 96.6; 2017 = 96.8; 2018 = 96.2; 2019 = 95.8
- Labor market (percent change)
  - Employment: 2016 = 0.6
  - Labor force: 2016 = -0.1
  - Unemployment rate (percent): 2016 = 10.1; 2017 = 9.4; 2018 = 8.9; 2019 = 8.5
  - Total compensation per employee: 2016 = 2.5
- Credit and interest rates (percent)
  - Growth of credit to the private non-financial sector: 2016 = 3.8; 2017 = 5.6
  - Money market rate (Euro area): 2016 = -0.3; 2017 = -0.4
- Balance of payments (percent of GDP)
  - Current account: 2016 = (blank)
  - Trade balance of goods and services: 2016 = -0.7
  - (Additional trade and balance figures are listed but appear as fragmented series: 31.7; 32.1; 31.3; 32.3; -32.4; -33.0; -32.3; -33.1)
- FDI (net): 2016 = (blank)
- Official reserves (US$ billion): 2016 = 56.1; 2017 = 54.8
- Exchange rates
  - Euro per U.S. dollar, period average: 2016 = 0.90; 2017 = 0.89
  - NEER, ULC-styled (2000=100): 2016 = 98.7; 2017 = 100.0
  - REER, ULC-based (2000=100): 2016 = 92.3; 2017 = 92.6
- Potential output and output gap
  - Potential output (change in percent): 2016 = 0.9
  - Output gap: 2016 = -1.0

### Policy recommendations (summarized)
- Press ahead with labor market, tax, training, and apprenticeship reforms and monitor them closely for effectiveness.
- If reforms underperform, reinforce with measures to increase wage-setting flexibility, strengthen training for young workers, and improve unemployment benefit work incentives.
- Implement complementary product market reforms, including further liberalization of regulated professions.
- Specify spending-reform measures early (starting with the 2019 budget) to credibly put public debt on a firm downward path and modernize public service provision.
- Continue macroprudential policies, monitor financial vulnerabilities, and build bank buffers against shocks while implementing international regulatory changes.

*IMF Executive Board Concludes 2018 Article IV Consultation with France — July 26, 2018*

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## References

- [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)
- [The Executive Board](https://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/2018/07/26/pr18311-imf-executive-board-concludes-2018-article-iv-consultation-with-france_