IMF Executive Board Concludes 2019 Article IV Consultation with France
IMF News, July 24, 2019
Source details
- Canonical URL
- IMF Executive Board Concludes 2019 Article IV Consultation with France
Other formats
Bibliographic details
- Published: July 24, 2019
Overview
- On July 22, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with France, which included discussion of the findings of the Financial Sector Assessment Program (FSAP) exercise for France.
- Short-term growth forecast: 1.3 percent in 2019 and 1.4 percent in 2020.
- Medium-term potential output: around 1½ percent.
Economic outlook and risks
- Near-term growth:
- Real GDP: 1.3 percent in 2019; 1.4 percent in 2020.
- Growth moderated after last year due to decelerating global growth and reduced slack.
- Inflation and labor market:
- CPI projected to reach 1.2 percent in 2019.
- Labor market improved with strong job creation and a further reduction in the unemployment rate.
- Medium-term:
- Growth expected to gradually converge toward long-run potential of around 1½ percent, supported by recovery of domestic and external demand and ongoing structural reforms.
- Key downside risks identified:
- Disorderly Brexit.
- Trade tensions.
- Softening of activity in the euro area.
- Slowdown in the domestic reform agenda.
Fiscal position and recommendations
- Recent fiscal outcomes:
- General government balance: -2.5 percent of GDP at end-2018; projected -3.2 percent in 2019 and -2.3 percent in 2020.
- Public debt: around 98 percent of GDP (99.0 percent in 2018; 98.6 percent projected in 2019).
- Revenue: 53.5 percent of GDP in 2018; projected 52.4 percent in 2019 and 52.1 percent in 2020.
- Expenditure: 56.0 percent of GDP in 2018; projected 55.6 percent in 2019 and 54.4 percent in 2020.
- Primary balance: -0.9 percent of GDP in 2018; projected -1.8 percent in 2019.
- Structural balance: -2.4 percent of potential GDP in 2018.
- Executive Directors’ fiscal guidance:
- Call for a sustained, growth‑friendly consolidation effort to reduce the deficit and put public debt on a firm downward path.
- Many Directors considered a strong adjustment appropriate to rebuild buffers and not delay achievement of the medium‑term objective under EU fiscal rules; some supported more gradual consolidation.
- Note that France has some fiscal space to use in a sharp downturn, but stressed balancing support for growth and safeguarding sustainability.
- Urged anchoring fiscal strategy in durable medium‑term reforms to reduce public spending.
- Supported planned civil service, pension, and unemployment benefit reforms to generate fiscal savings and improve public sector efficiency.
- Recommended complementing these reforms with additional spending measures to reconcile frontloaded tax relief, priority investment, and debt reduction.
Structural reforms and labor market
- Reforms enacted and planned:
- Revamped vocational training and professional development to foster labor market participation, especially for low-skilled workers.
- Key labor tax and labor code reforms enacted in the government’s first year in office.
- Business environment reform enacted to spur competition, innovation, and productivity growth.
- Government providing substantial tax relief to boost households’ purchasing power.
- Some expenditure savings expected from planned reforms of the civil service, pensions, and unemployment benefits.
- Executive Directors’ recommendations:
- Pursue and build on the reform agenda to address high public and private debt, still high structural unemployment, sluggish productivity growth, and inequality of opportunity.
- Carefully assess tradeoffs and proper sequencing of structural reforms and fiscal consolidation.
- Implement labor market reforms resolutely, monitor effects carefully, and be ready to deepen them if outcomes fall short.
- Complement recent business environment reforms with further efforts to liberalize regulated professions, retail trade, and the sale of medicines.
- Positive note on authorities’ commitment to transition France to a low‑carbon economy.
Financial sector, resilience, and FSAP findings
- Actions taken:
- Authorities raised the countercyclical capital buffer after activating it last year.
- Lowered the large exposure limit of banks to large indebted companies to address systemic risk from corporate leverage.
- Executive Directors’ assessment and recommendations:
- Commended progress in bolstering financial system resilience as reflected in the FSAP review.
- Emphasized need to continue monitoring systemic risks closely and stand ready to deploy additional macro‑ and micro‑prudential policies as needed.
- Called for further integration of monitoring and oversight at the conglomerate level, strengthening liquidity‑risk management within conglomerates, and ensuring adequate liquidity buffers.
- Recommended enhanced AML/CFT supervision of smaller banks.
Executive Board Assessment (summing up)
- Directors noted growth slowed but remained relatively resilient compared to peers; labor market conditions continued to improve.
- Growth outlook solid but downside risks have risen (global trade tensions, uncertain Brexit outcome, weaker‑than‑expected growth in Europe).
- Commended continued progress with structural reforms supporting jobs and growth.
- Recommended prioritizing reforms to address structural challenges and highlighted careful sequencing and tradeoffs.
- Urged a sustained, growth‑friendly consolidation effort; views differed on speed (some for strong adjustment, some for more gradual consolidation).
- Stressed anchoring fiscal strategy in durable medium‑term spending reforms and complementing reforms to reconcile tax relief, investment, and debt reduction.
Selected economic indicators (2017–20, as presented)
- Real economy (change in percent):
- Real GDP: 2.3 (2017); 1.7 (2018); 1.3 (2019); 1.4 (2020).
- Domestic demand: 1.0 (2017).
- Foreign balance (contr. to GDP growth): -0.1 (2017); 0.7 (2018); 0.0 (2019).
- CPI (year average): 1.2 (2017); 2.1 (2018).
- GDP deflator: 0.5 (2017); 0.8 (2018).
- Public finance (percent of GDP):
- General government balance: -2.8 (2017); -2.5 (2018); -3.2 (2019); -2.3 (2020).
- Revenue: 53.6 (2017); 53.5 (2018); 52.4 (2019); 52.1 (2020).
- Expenditure: 56.4 (2017); 56.0 (2018); 55.6 (2019); 54.4 (2020).
- Primary balance: -1.1 (2017); -0.9 (2018); -1.8 (2019).
- Structural balance (percent of pot. GDP): -2.6 (2017); -2.4 (2018).
- General government gross debt: 98.4 (2017); 99.0 (2018); 98.6 (2019).
- Labor market (percent change / rates):
- Employment: 0.9 (2017); 0.6 (2018); 0.4 (2019).
- Labor force: 0.1 (2017); 0.3 (2018); 0.2 (2019).
- Unemployment rate (percent): 9.4 (2017); 9.1 (2018); 8.6 (2019); 8.3 (2020).
- Credit and interest rates (percent):
- Growth of credit to the private non-financial sector: 5.6 (2017); 5.5 (2018); 5.0 (2019); 4.6 (2020).
- Money market rate (Euro area): -0.4 (2017).
- Balance of payments (percent of GDP):
- Current account: -0.7 (2017); -0.6 (2018); -0.5 (2019).
- Trade balance of goods and services: -1.0 (2017).
- Exports of goods and services: 32.1 (2017); 32.6 (2018); 34.7 (2019).
- Imports of goods and services: -33.1 (2017); -33.7 (2018); -35.7 (2019).
- Official reserves (US$ billion): 54.8 (2017); 66.1 (2018).
- Exchange rates:
- Euro per U.S. dollar, period average: 0.89 (2017); 0.85 (2018).
- NEER, ULC-styled (2005=100, +=appreciation): 97.1 (2017); 98.2 (2018).
- REER, ULC-based (2005=100, +=appreciation): 90.5 (2017); 91.1 (2018).
Source: IMF press release, July 24, 2019.
