Front Matter Page

August 2013

IMF Country Report No. 13/252

FRANCE

SELECTED ISSUES PAPER

This Selected Issues paper on France was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with France. It is based on the information available at the time. It was completed on July 12, 2013. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of France of the Executive Board of the IMF.

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

700 19^th Street, N.W. • Washington, D.C. 20431

Telephone: (202) 623-7430 • Telefax: (202) 623-7201

E-mail: publications@imf.org Internet: http://www.imf.org

International Monetary Fund

Washington, D.C.

© 2013 International Monetary Fund

Front Matter Page

July 12, 2013

FRANCE

SELECTED ISSUES

Approved By

The European Department

Contents

• EXTERNAL DEVELOPMENTS AND COMPETITIVENESS

• A. Recent External Developments

• B. A Closer Look at Services

• C. External Assessment

• FIGURES

• 1. Developments in Goods Trade

• 2. Structural Characteristics in Service Sectors, 2010

• TABLES

• 1. Balance of Payments, 2000–2012

• 2. Impact on Aggregate Prices of a Sector-by-Sector 10 percent Reduction in Services Costs

• POTENTIAL GDP ESTIMATES FOR FRANCE: PRUDENT (AND CALLING FOR ACTION)

• A. Introduction

• B. Cycle Extraction Methods

• C. Results

• D. Potential GDP Estimates: Dealing With Uncertainty

• FIGURES

• 1. Potential GDP Across Methodologies

• 2. Factors Underlying Potential GDP Growth, Gaps Approach

• 3. Simulation on Potential GDP

• TABLES

• 1. Potential GDP Growth, 1992–2012

• 2. Root Mean Square Revisions

• REFERENCES

• WHICH EXPENDITURE SAVING TO SUSTAIN MEDIUM-TERM FISCAL CONSOLIDATION?

• A. A Historically Large Adjustment

• B. What Makes a Successful Fiscal Consolidation?

• C. Which Expenditure Saving Should France Consider?

• D. Conclusion

• FIGURES

• 1. Main Fiscal Indicators

• 2. General Government Spending and Real Growth

• 3. General Government Spending

• 4. Impact of Past Expenditure Cuts

• 5. Sweden: Real Growth in Expenditures

• 6. Public and Private Social Expenditure

• 7. Public Social Spending in Selected OECD Countries

• 8. Employee Compensation in Total GG Spending

• 9. Wage Bill by Level of Government

• TABLES

• 1. Discretionary Budget Measures in Recent Fiscal Adjustment

• 2. Estimated Short-Tern Fiscal Multipliers

• 3. Public Social Expenditure by Broad Social Policy Areas

• REFERENCES

• FRENCH FIRMS AND GLOBALIZATION

• A. Export and Investment Trends

• B. Capacity Expansion in Industry and Profit Margins

• C. The Erosion of Competitiveness: Evidence from Enterprise-Level Data

• D. Conclusions and Policy Implications

• FIGURES

• 1. Investment Expansion

• 2. Profit Margins: Industrial Sectors

• 3. Industrial Firms: Profit Margins

• 4. Industrial Firm Investment, 2003 vs. 2011

• 5. Manufacturing Firms: Average Gross Profit Margins

• 6. Total Factor Productivity

• 7. Factors Preventing Growth: Industrial Firms

• 8. Firm Peer Comparison

• REFERENCES

• APPENDIX

• 1. Tables

• APPENDIX TABLES

• 1 Main Results of the EFIGE Survey

• 2. Investment, Exports, and Efficiency of French Firms

• 3. Impact of the Crisis