{
  "title": "France: Staff Concluding Statement of the 2021 Article IV Mission",
  "publication": "IMF News, November 9, 2021",
  "sourceUrl": "https://www.imf.org/en/news/articles/2021/11/09/mcs-france-staff-concluding-statement-2021-article-iv-mission",
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  "summary": "France experienced one of the deepest COVID shocks in Europe but has seen a strong recovery supported by robust policy measures and high vaccination rates.",
  "publishDate": "2021-11-09",
  "sections": [
    {
      "heading": "Mission summary and key messages",
      "content": "- France experienced one of the deepest COVID shocks in Europe but has seen a strong recovery supported by robust policy measures and high vaccination rates.\n- Continued downside risks justify a supportive fiscal stance in 2022 focused on investment to raise medium-term growth and reduce scarring.\n- From 2023 onward, France should pursue gradual expenditure-based fiscal consolidation to rebuild buffers and put public debt on a firmly declining path, while protecting critical investments for the green and digital transitions.\n- Reforms are needed to boost international competitiveness, productivity growth, worker skills, and equitable opportunities for youth.\n- The financial sector has performed well through the crisis, but vigilance is warranted."
    },
    {
      "heading": "Economic outlook and near-term risks",
      "content": "- Vaccination and public-health measures:\n  - 88 percent of adults vaccinated.\n  - Measures cited include vaccine or test-linked health pass for participation at most public venues and compulsory vaccination for certain jobs.\n- Recent economic performance:\n  - Output contracted by 8.0 percent in 2020.\n  - Economy nearly regaining its pre-crisis level by 2021Q3.\n  - Investment recovering more quickly than consumption and already exceeds its pre-crisis level.\n  - Employment is robust and the unemployment rate has remained relatively stable.\n- IMF staff forecasts and projections:\n  - Revised up the 2021 GDP growth forecast to around 6¾ percent in 2021.\n  - 2022 growth expected to moderate to 3.7 percent.\n  - Headline inflation projected to increase to about 2 percent this year but drop to 1.7 percent by next year.\n  - Unemployment rate forecast to decrease to 7.8 percent in 2021.\n- Risks to the outlook:\n  - Downside risks: increasingly virulent strains, waning vaccine effectiveness, persistent supply-chain bottlenecks, and disorderly transformations causing inefficient labor and capital allocation.\n  - Upside risks: faster rundown of accumulated savings or stronger demand recovery in hard-hit sectors."
    },
    {
      "heading": "Fiscal policy for the recovery and medium-term consolidation",
      "content": "- Crisis support and current stance:\n  - Total envelope for crisis and recovery measures for 2020–22 about 28 percent of 2020 GDP.\n  - Authorities have begun to scale down and focus support as the crisis ebbs.\n- 2022 policy guidance:\n  - A moderately expansionary fiscal stance is warranted; additional stimulus should be targeted on supply-side measures to boost potential growth.\n  - Support investment policies in France Relance and NextGen EU; France 2030 could boost innovation but its governance should include significant independent private sector component.\n  - Fiscal policy should remain flexible and provide targeted additional relief if downside risks materialize.\n- Energy-price response and social protection:\n  - IMF staff view recent inflation from energy prices as largely transitory and support targeted and temporary transfers to vulnerable households (e.g., revalorisation du chèque énergie).\n  - Advise against broad-based transfers and long-lasting price-control measures; cut in electricity taxes, cap on gas prices, and indemnité inflation should remain strictly temporary.\n  - Further expansion of the chèque énergie would be appropriate if energy prices rise further.\n- Medium-term fiscal consolidation path:\n  - Under unchanged policies, fiscal deficit would remain above 3 percent of GDP and debt-to-GDP would keep increasing.\n  - Recommend gradual adjustment to reach pre-crisis medium-term objective (MTO) of a 0.4 percent of GDP structural deficit before the end of the decade.\n  - This target would require a cumulative fiscal effort of about 4¾ percentage points of GDP over seven years, assuming no further major shocks.\n  - Suggested profile: average annual reduction in the primary structural deficit of around 0.6 percent of GDP over 2023-26 and around 0.8 percent of GDP per year in the medium-term until the MTO is met.\n- Composition of adjustment:\n  - Concentrate on reducing the growth rate of current public expenditure while allowing room for needed investment (e.g., France Relance, NextGen EU).\n  - Pursue planned reforms in pensions, unemployment insurance, and the civil service.\n  - Trim tax expenditures that hinder climate objectives, reduce overlaps between levels of government, and simplify/unify social support schemes to improve targeting and incentives.\n  - Future revenue from higher carbon pricing could help finance environmental investments and compensation for vulnerable households.\n- Fiscal rules and oversight:\n  - IMF staff calculations: a limit on expenditure growth of 1.7 percent per year (compared to 2.4 percent under the baseline) would achieve the recommended adjustment path.\n  - Fiscal rule should be multiyear at the general government level, include a mechanism to monitor deviations, and strengthen the Fiscal Council (HCFP).\n  - France should not wait for European action to implement its own fiscal rule."
    },
    {
      "heading": "Financial sector stability and macroprudential policy",
      "content": "- Banking sector performance:\n  - Banking sector withstood the crisis well and provided ample credit, reflecting healthy capital and liquidity positions and policy support.\n  - Widespread corporate defaults have not materialized, but some delayed, sector-specific solvency risk could emerge as emergency supports phase out.\n  - Banks should monitor asset quality, proactively engage with viable but challenged corporates (drawing on options including the prêt participatif), and deploy provisions and capital buffers as needed.\n  - Monitor conglomerate intragroup transactions and consider concentration thresholds to limit risk from highly indebted firms.\n  - Adjust incentives to reduce extraordinary contingent liabilities of the State as recovery firms.\n- Macroprudential stance:\n  - Broadly appropriate but may require tightening if debt-driven asset valuation risks increase.\n  - Support timely re-activation of the counter-cyclical capital buffer—possibly in 2023—conditional on the recovery unfolding at least as quickly as under staff’s projections.\n  - Risks from the real estate market require continued vigilance: real estate price growth accelerated in 2020; household debt to income remains elevated.\n  - If trends continue, fine tuning borrower-based measures or deploying complementary measures may become appropriate."
    },
    {
      "heading": "Structural reforms, labor market, competitiveness, and the green transition",
      "content": "- Labor market and skills:\n  - Short-time work scheme prevented large-scale employment losses and preserved employment relationships.\n  - Labor market conditions tightening, vacancies rising, while long-term unemployment remains high.\n  - Policies should alleviate skills shortages by combining job-search assistance with training programs.\n  - Support programs in the 2022 budget: contrat d’engagement for youth out of work and education; mesures pour le développement des compétences et l’insertion dans l’emploi to boost training.\n  - Address educational disparities and strengthen school-to-work transitions to distribute growth dividends equitably.\n- Competitiveness and product markets:\n  - France stabilized export performance but further improvement is needed.\n  - Recommend product market reforms to ease regulation and entry barriers in non-tradable service sectors.\n  - Foster innovation via human capital investment and funding for basic research, including in sectors at the technological frontier.\n  - Properly designed France 2030 program could contribute.\n- Climate policy and green transition:\n  - IMF staff welcome authorities’ push for carbon neutrality; objective enshrined in French law since the 2019 Climate and Energy Law.\n  - EU’s “Fit for 55” policies increase ambition toward EU carbon neutrality by 2050.\n  - Recommend additional and strengthened green policies, including adequate carbon pricing with mitigating measures for low-income households.\n  - Leverage French firms in automobiles, power generation, and aeronautics to establish technological lead in green energy generation and zero emission transportation.\n  - Worker training and skills matching are critical to facilitate the green transition without employment losses.\n\nFrance: Staff Concluding Statement of the 2021 Article IV Mission (November 9, 2021).\n\n---\n\n\n References\n\n- France and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2021/11/09/mcs-france-staff-concluding-statement-2021-article-iv-mission"
    }
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    "Published: November 9, 2021",
    "France experienced one of the deepest COVID shocks in Europe but has seen a strong recovery supported by robust policy measures and high vaccination rates.",
    "Continued downside risks justify a supportive fiscal stance in 2022 focused on investment to raise medium-term growth and reduce scarring.",
    "From 2023 onward, France should pursue gradual expenditure-based fiscal consolidation to rebuild buffers and put public debt on a firmly declining path, while protecting critical investments for the green and digital transitions.",
    "Reforms are needed to boost international competitiveness, productivity growth, worker skills, and equitable opportunities for youth.",
    "The financial sector has performed well through the crisis, but vigilance is warranted.",
    "Vaccination and public-health measures:",
    "Recent economic performance:",
    "IMF staff forecasts and projections:",
    "Risks to the outlook:",
    "Crisis support and current stance:",
    "2022 policy guidance:",
    "Energy-price response and social protection:",
    "Medium-term fiscal consolidation path:",
    "Composition of adjustment:",
    "Fiscal rules and oversight:",
    "Banking sector performance:",
    "Macroprudential stance:",
    "Labor market and skills:",
    "Competitiveness and product markets:",
    "Climate policy and green transition:",
    "[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)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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