Transcript of France 2020 Article IV Press Briefing

IMF News, January 19, 2021

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Published: January 19, 2021

Economic forecast

IMF estimate: GDP declined by around 9 percent in 2020.
IMF baseline projection: recovery of about 5.5 percent in 2021 followed by a further recovery of 4 percent in 2022.
Risks: "extraordinarily high" — primary risk is virus dynamics (reopening after the second wave, possible third wave, pace of vaccinations, timing of herd immunity).
One downside risk removed since the mission: a no deal Brexit (a deal was reached), reducing some downside risks to the French economy.

Short-run policy priorities

Tackle the health crisis (priority number one):
- Continue treatment, public health and safety measures, and vaccinations.
- Latest numbers reported: some 450,000 vaccinations, which is about 0.74 percent of the population.
- Authorities’ objective: "1 million vaccination this month."
Continue to support economic activity:
- Support provided so far described as "excellent" — large quantity of support to households and firms with relatively high take up and significant cushioning effects.
- Support should continue as long as the health crisis continues and be flexible (e.g., additional support attached to the new couvre-feu).
Remain vigilant about financial sector risks:
- No major problems seen currently; French banking sector entered crisis relatively healthy.
- Profitability has slumped but sector has not gone into deficit.
- Continued close monitoring recommended.

Medium-term priorities

Gradually tighten the focus of emergency measures as recovery begins:
- Narrow support to firms and population segments most in need.
Provide support for the recovery process:
- "Plan de Relance" seen by IMF Executive Directors as an excellent step.
- Positive recognition for green components and emphasis on digitalization.
- Encourage attention to poverty, inequality, and disadvantaged groups as the recovery proceeds.
Deal with scarring and aftereffects of the crisis:
- Encourage increased equity-like support (not just loans and guarantees) to facilitate firms’ return to investment.
- Anticipate some increase in loan defaults as support becomes more focused; banks should be flexible, maintain capital buffers, and facilitate transition to new areas of activity.
Fiscal strategy: "PLAN NOW, ACT LATER"
- No need for fiscal consolidation in the short run; continue necessary support.
- Begin planning now for a credible medium-term fiscal consolidation plan to start in a couple of years once the crisis eases and recovery is solid.
- Consolidation program should run over several years to bring deficit down and put the debt-to-GDP ratio on a sustained, declining path; focus primarily on the expenditure side given a high tax burden.

Financial sector and corporate sector risks (findings and recommendations)

Observed 2020 bankruptcies in France were below their normal level due to government support, loan guarantees, and temporary suspension of bankruptcy processes.
Expect bankruptcies to rise above normal levels once easing begins — viewed as part of normal creative destruction.
Recommendations:
- Maintain or expand support for bankruptcy procedures to facilitate rapid, orderly restructuring.
- Encourage banks to be flexible in dealing with corporate debt and insolvency problems.
- Monitor risk of an extraordinary wave of insolvencies that could increase unemployment and reduce new firm creation.

Equity gap and equity-like support

IMF staff estimate of the equity gap: something on the order of 1.3 percent of GDP.
Some of this gap being covered by government measures; room for additional support remains.
Assessment of les Prets Participatifs:
- Viewed as a potentially excellent mechanism for equity and quasi-equity support.
- Recommended to scale up as needed, ensure procedural agility, and consider subordinated lending mechanisms included in the 2021 budget.

Fiscal consolidation timing (criteria and scenario)

Three criteria for starting consolidation:

1. Recovery should be underway (growth turns positive). 2. GDP should have achieved its pre-crisis level. 3. Growth should be solid with downside risks abating.

Under staff forecast cited in Q&A: "9 in 2020, plus 5½ in 2021, and plus 4 in 2022" — French GDP would return to pre-crisis level only at the end of 2022 or beginning of 2023.
Implication:
- If recovery is quicker, consolidation could start in 2022.
- Under current forecast, consolidation might begin in 2023.
- Consolidation should be state-contingent, not tied to a specific calendar year.

Key statistics and figures (verbatim)

"around 9 percent" (GDP decline in 2020)
"about 5.5 percent in 2021"
"4 percent in 2022"
"some 450,000 vaccinations"
"0.74 percent of the population"
"1 million vaccination this month"
equity gap estimate: "1.3 percent of GDP"
forecast phrasing in Q&A: "9 in 2020, plus 5½ in 2021, and plus 4 in 2022"

Transcript of France 2020 Article IV Press Briefing