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IMF Country Report No. 15/178
FRANCE
2015 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR FRANCE
July 2015
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2015 Article IV consultation with France, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its July 8, 2015 consideration of the staff report that concluded the Article IV consultation with France.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on July 8, 2015, following discussions that ended on May 20, 2015 with the officials of France on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 23, 2015.
An Informational Annex prepared by the IMF staff.
A Debt Sustainability Analysis prepared by the staff of the IMF.
A Staff Statement updating information on recent developments.
A Statement by the Executive Director for France.
The documents listed below have been or will be separately released.
Selected Issues
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
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© 2015 International Monetary Fund
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FRANCE
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION
June 23, 2015
Key Issues
Context. After several years of near-stagnation, France’s economy is recovering, supported by an accommodative external environment, in particular lower oil prices, a depreciated euro, and low interest rates. However, structural rigidities continue to weigh on France’s medium-term growth potential, estimated to average just 1.2 percent, despite steady labor force growth.
Policies. The fiscal strategy has rightly shifted to expenditure-based consolidation, but nominal spending containment has not yielded the intended savings in a low growth and inflation environment. Important progress has recently been made on structural reforms, notably by reducing the labor tax wedge and advancing on supply-side reforms. Further efforts are needed to address high unemployment, growth bottlenecks, and record-high public spending.
Spending-based fiscal consolidation. To ensure that medium-term fiscal objectives are met, general government primary spending should be kept flat in real terms, starting in 2016. This would deliver structural adjustment of ½ percent of GDP per year, and place public debt on a downward trajectory by 2017. Spending containment should shift to higher quality structural measures based on broad-based expenditure reviews at all levels of government—notably staffing reform, institutional streamlining and tighter budget constraints for local governments, better targeting of social benefits, and a further increase in the effective retirement age.
Combating unemployment. Building on recent reforms, broad-based efforts are needed to reduce the high level of structural unemployment and accelerate job creation. Flexibility for social partners to agree at firm level on hours and wages should be expanded. Annual increases in the minimum wage should be limited to inflation as long as unemployment remains high. Job search incentives should be strengthened for recipients of unemployment and welfare benefits. Education and training resources should be better targeted to the youth and the unemployed.
Removing growth bottlenecks. The recent momentum on product market reforms should be maintained. Further removing barriers to competition in services would help provide better incentives for innovation and productivity growth. Disincentives for firms to grow beyond certain employee thresholds should be reduced and the process for cutting red tape be made more effective. Further efforts are also needed to alleviate constraints on the supply of affordable housing.
Financial sector. The financial sector should continue to adapt to a changing macroeconomic and regulatory environment. The guaranteed interest rates on regulated savings deposits should be reduced, and tax incentives for savings and insurance products reviewed.
Approved By
Jörg Decressin and Vikram Haksar
Discussions took place in Paris from May 4–20, 2015. The staff team comprised Messrs. C. Mumssen (mission head), Eugster, Hallaert, Oman, and Ms. Kongsamut (all EUR), and Mses. Pérez Ruiz, Valladares, and Messrs. Mason and Gorbanyov (from HQ). Mr. Decressin (EUR) joined at the end of the mission. Mr. de Villeroché and Mr. Guyon (OED) participated in the discussions. Staff met with Ministers Sapin (Finance), Macron (Economy), Eckert (Budget), Pinel (Housing), Bank of France Governor Mr. Noyer, other senior officials, and representatives from the financial and private sectors, parliament, and labor. A press conference was held at the end of the mission.
Contents
CONTEXT–LATE RECOVERY AND FISCAL SLIPPAGES
OUTLOOK AND RISKS
A. Brighter Short-Term Prospects
B. Structural Rigidities Weighing on Medium-Term Prospects
POLICY DISCUSSIONS
A. Fundamental Spending Reform to Underpin Fiscal Sustainability
B. Combating Unemployment
C. Removing Growth Bottlenecks
D. Adapting the Financial Sector
STAFF APPRAISAL
BOXES
1. Potential Output in France
2. Key Structural Reforms
FIGURES
1. Economic Performance During the Crisis Years
2. Real Sector and Inflation
3. Competitiveness
4. External Sector
5. Banking Sector and Credit
6. Fiscal Sector
7. Labor Market
8. Product Market
TABLES
1. France. Selected Economic and Social Indicators, 2010–20
2. France: General Government Accounts, 2009–20
3. France: Balance of Payments, 2009–20
4. France: Vulnerability Indicators, 2007–14
5. France: Core Financial Soundness Indicators, 2007–14
6. France: Encouraged Financial Soundness Indicators, 2007–14
7. Major Structural Reform Implemented and Announced
APPENDICES
I. Estimating the Impact of External Shocks
II. Main Recommendations of the 2014 Article IV Consultation and Authorities’ Actions
III. Debt Sustainability Analysis
IV. France: Risk Assessment Matrix
V. External Sector Report
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FRANCE
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
June 23, 2015
Prepared By
The European Department
Contents
FUND RELATIONS
STATISTICAL ISSUES
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Press Release No. 15/328
FOR IMMEDIATE RELEASE
July 10, 2015
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