France: 2018 Article IV Consultation—Press Release; Staff Report; and Statement By The Executive Director for France

2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for France


2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for France

Context: A Robust Recovery

France has benefitted from a broad-based recovery…

1. Growth accelerated in 2017, reaching 2.3 percent, 1.2 percentage points higher than in 2016 (Figure 1).1

Figure 1.
Figure 1.

High Frequency Indicators

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

  • Private investment was a key driver of growth, supported by an improved business climate, strong bank credit growth (5.6 percent y-o-y) and corporate bond issuance, boosted by the ECB’s accommodative policy.

  • Exports performed well (y-o-y growth of 4.5 percent), buoyed by increased global demand and a recovery of tourism (Figure 2). However, the net impact of external demand on growth was modest, as imports also accelerated (y-o-y growth of 4 percent).

  • Labor market conditions improved, supporting private consumption (Figure 3). After hovering around 10 percent for several years, the headline unemployment rate declined to just over 9 percent in 2018:Q1, reflecting a pickup in private sector employment (y-o-y growth of 1 percent in 2018:Q1). Wages have grown in line with the euro-area average.

  • CPI Inflation has been on the rise, reaching 2.1 percent y-o-y at end-June 2018, reflecting an acceleration of energy, food, service, and tobacco prices. Core inflation has also increased slightly (1 percent s.a. in May 2018), although this reflects in part the effects of higher green taxes.

  • The fiscal deficit fell to 2.6 percent of GDP in 2017, below the EDP limit of 3 percent for the first time since 2007, largely driven by stronger revenues associated with the better growth and employment outcomes.2

Figure 2.
Figure 2.

Labor Market Developments

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Figure 3.
Figure 3.

External Sector

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001


Contribution to Annual Real GDP Growth

(Percent; YoY growth)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Source: Haver Analytics.

Unemployment Rate and Inflation


Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Source: Haver Analytics.

Fiscal Balance

(Percent of GDP)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Sources: INSEE and IMF staff calculations.

…supported by past and ongoing domestic reforms.

2. The government implemented key labor market and tax reforms over the last year. These reforms, which come on the heels of previous liberalization measures, have decentralized collective bargaining toward the firm level, simplified social dialogue, reduced judicial uncertainty around dismissals, lowered the tax wedge while supporting investment, and restructured the railway sector, are broadly in line with staff’s past recommendations (Annex I).

Recent and Upcoming Reforms

article image

But deep-rooted structural problems persist, and some new challenges are emerging…

3. France’s economic performance has long been hampered by an inflexible labor market and high structural unemployment. These reflect entrenched rigidities, including: (i) inability of the education and training systems to match quickly and well individuals’ skills with changing business needs, which creates imbalances between the demand and supply of labor; (ii) elevated minimum wages relative to median wages, which hinder access to work for the young and the low skilled; and (iii) limited incentives to work, reflected in relatively generous unemployment benefits and a still elevated labor tax wedge relative to peers, even after the recent tax reforms. Some socio-economic groups have been particularly affected by these rigidities, notably the youth, the low-skilled and non-EU immigrants, which consequently exhibit higher unemployment rates and higher incidence of poverty compared to other groups.3


Unemployment Rate by Subgroups, 2017

(Percent of active population of group)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Source: Eurostat.

4. Competitiveness has remained weak. France lost about a third of its world market share since the early 2000s, largely due to wages growing faster than productivity in the mid-2000s, with both the ULC and CPI-based real exchange rate (REER) appreciating during this period, but also due to non-price specific factors.4 Unlike some of its peers (e.g. Germany, Spain), and despite some improvement in the REER indicators over the last decade, France was not able to recover the loss in market share, given the economy’s specialization in medium to low-tech sectors that are relatively more exposed to price competition. Consequently, the current account balance has been in deficit in the last decade. The deficit, although it has declined in recent years, reaching 0.6 percent of GDP at end-2017, remains moderately weaker than the level implied by medium-term fundamentals and desirable policy settings (Annex II).


World Market Share: Exports of Goods and Services


Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Source: World Economic Outlook.

Real Effective Exchange Rate, 37 Trading Partners

(Index 1998=100)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Source: Eurostat.

5. Large fiscal imbalances persist. France’s persistent fiscal deficits have been driven by high spending growth, especially related to social benefits, transfers, and local governments. As a result, at 56.4 percent of GDP at end-2017, France’s public spending was the highest in Europe. Revenue-based consolidation efforts undertaken during the recent global crisis reached a limit and were subsequently followed by tax relief legislated with the 2018 budget. More recent efforts aimed at expenditure-based fiscal consolidation since 2014 relied mainly on across-the-board nominal spending growth restraint (e.g. legislated spending freezes) and have not delivered much real spending reduction, because of weak price growth. Consequently, public debt continued to rise, reaching 97 percent of GDP at end-2017, among the highest in Europe.


General Government Expenditure

(In percent of GDP)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Note: Ireland’s 2010 general government expenditure excludes a one-off bank recapitalization.Source: World Economic Outlook.

General Government Debt-to-GDP Ratio

(In percent of GDP)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Sources: Haver Analytics and IMF staff calculations.

6. Private debt has also been rising. At around 180 percent of GDP, gross private sector debt is high relative to peers. This is largely due to high and rising corporate debt, which has reached 130 percent of GDP (unconsolidated), reflecting a combination of bank credit, corporate bond issuance, and intercompany loans (Figure 4). While consolidated corporate debt is lower (close to 80 percent of GDP), the debt burden is concentrated in a few network sectors (e.g. transportation, utilities), and among relatively few large firms. Should interest rates normalize faster than expected, indebted corporates and sectors could face an increasing debt-service burden, which could have repercussions across the economy, weigh on investment, and affect banks’ balance sheets, further constraining growth (although firms have also increased liquid assets, which can provide a cushion).

Figure 4.
Figure 4.

Corporate Debt

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001


Private Debt

(Percent of GDP)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Source: Haver Analytics.

Non-Financial Corporate Debt

(Percent of GDP)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Source: Haver Analytics and IMF staff calculations.

Outlook: Positive Prospects Amid Growing Risks

7. Near-term growth prospects remain positive, although less buoyant than the 2017 peak. Growth is projected to fall to 1.8 percent this year, supported by continued robust investment and exports, reflecting favorable domestic financing conditions and stable global growth. After a weak Q1 outturn (growth of 0.2 percent q-o-q), activity is expected to rebound, as private consumption picks up on the back of legislated tax cuts entering into effect in the second half of the year and exports and investment rebound. Next year, growth is projected at 1.7 percent, as a slowdown in public consumption and higher imports more than offset an expected increase in private consumption linked to further expected tax cuts. Credit growth is expected to continue to support investment, growing in line with GDP in the medium term. Inflation is projected to increase to 1.8 percent this year, spurred by higher energy prices and a gradual increase in core inflation. The output gap should be largely closed this year, consistent with high capacity utilization and emerging difficulties to fill vacancies in the labor market (Box 1).

France: Selected Economic Indicators, 2017-23

article image
Sources: Haver Analytics, INS EE, Banq ue de Fra nce, and IMF Staff calcu lations.

8. The medium-term outlook is predicated on the implementation of ongoing and planned reforms. Output growth is projected to moderate and gradually converge towards its long-run potential level of around 11/2 percent, supported by solid domestic demand and continued positive export prospects. The contributions of capital and labor to potential output are expected to remain stable, at around % and 1Λ percent, respectively, while TFP growth is expected to rise and return to its historical average (1998-2017) of about 1/2 percent. These trends will be critically affected by ongoing and planned tax, labor-market, and product-market reforms (as discussed in the next sections) which are expected to boost labor force participation and productivity, boosting potential growth by around 1/2 percentage points in the medium run.5 Potential growth estimates remain surrounded by uncertainty, given possible structural breaks in the trends of factor inputs and TFP following the recent global financial crisis, and difficulties in predicting the effects of recent structural reforms. The current account is expected to return to balance in the medium run, supported by structural and fiscal reforms.


Potential Growth Decomposition

(Percentage point contribution to potential growth)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Source: IMF staff calculation.

9. Risks have risen and remain firmly tilted to the downside (Annex III). Domestic downside risks include a less ambitious implementation of reforms or lower-than-expected reform gains, which could slow the growth and employment momentum, and derail the planned fiscal consolidation, with second-round effects on confidence and activity. Externally, a further escalation of trade tensions between the US and its global trading partners could affect negatively euro area and global growth, which in turn would impact France’s exports and growth. Geopolitical uncertainty related to the Brexit negotiations and a rekindling of financial market volatility in Europe (including related to developments in Italy) could affect France through confidence, trade, and financial sector channels. Finally, a faster-than-expected normalization of interest rates could weigh on public and private balance sheets.

Authorities’ Views

10. The authorities’ near-term growth projections in their Stability Program were slightly above staff’s. They projected growth to remain around 2 percent in 2018-19, and to stabilize to around 1.7 percent in the medium run, on account of strong private consumption, exports, and to a lesser extent, investment, and notwithstanding a net structural fiscal adjustment of around 1/2 percent of GDP in the medium term. The Central Bank expected growth to reach around 1.8 percent in the near term. The Stability Program projected inflation to reach 1.4 percent in 2018, and to gradually converge to 1.8 percent in the medium term. The authorities saw risks as balanced. On one hand, stronger growth in the eurozone, a possible depreciation of the euro given rapidly rising U.S. interest rates, and larger effects from domestic reforms would be positive for France. On the other hand, an intensification of trade tensions, uncertainty related to Brexit negotiations, or political risks in the euro-zone could impact negatively France’s growth.

The Policy Agenda: Growth, Jobs, Resilience

11. The overarching priority is to ensure that the recovery is job rich and long lasting, while building buffers against shocks. Over the last year, France has made substantial progress in this regard, and the reform agenda ahead is equally ambitious, placing France in the lead on reforms in the eurozone at the current juncture. Looking forward, the authorities should continue to pursue the following priorities:

  • Lowering structural unemployment and improving opportunities for disadvantaged groups by finalizing and implementing the reform overhauling the apprenticeship and professional-training systems. The authorities should stand ready to reinforce recent labor-market reforms with additional measures if needed to ensure that wages evolve in line with productivity, the unemployment system provides adequate incentives to work, and training can reach those most in need, especially the youth.

  • Improving the business environment and strengthening competition in service sectors by continuing to reduce the administrative burden, supporting innovation and start-ups, and taking additional steps to further liberalize regulated professions.

  • Putting public debt on a sustained downward path through spending reforms at all levels of government, including social benefits, the public administration, pensions, healthcare, and local governments. In view of the sizeable effort needed to attain the authorities’ medium-term objectives, the authorities should specify early on, starting with the 2019 budget, the spending reforms that can help achieve their fiscal goals.

  • Further supporting the financial sector’s resilience by implementing ongoing international regulatory changes and continuing to actively use macroprudential policies pre-emptively.

12. The ongoing recovery provides a favorable window to press ahead with these reforms. The government should take advantage of its strong reform mandate and majority in parliament to advance with the reform agenda and address remaining domestic structural challenges. A strong and resilient French economy is also important to help the whole euro area emerge from the legacies of the crisis and catalyze broader EU-wide reforms.

A. Structural Reforms: Supporting Employment and Competitiveness6

13. Last fall, the authorities enacted a first stage of labor market and tax reforms aiming at supporting investment, employment, and growth. A collective-bargaining system largely dependent on decisions taken at the branch level, compounded by a complex social dialogue process, has supported higher overall wages, but at the cost of lower and more precarious employment, by preventing firms (especially small ones) not represented in the negotiations from being able to adjust labor costs during downturns or given firm-specific circumstances. Legal uncertainties regarding dismissals have further discouraged open-ended labor contracts, exacerbating duality, while a relatively high tax wedge has further dis-incentivized employment and hampered competitiveness. The new reforms, which build on steps taken by previous governments, aim at addressing these problems:

  • Collective bargaining: The labor-code reform aims to better align wages and other non-wage costs with productivity at the firm level by limiting the automatic extension of branch-level agreements on remuneration, working time and mobility of employees, while expanding the areas negotiated at the firm level (but excluding basic wages). It also facilitates social dialogue by merging representative bodies and reducing the number and scope of company consultations. The reform is expected to support competitiveness and employment, particularly in smaller firms, by promoting competition and firm entry, while minimizing firm closures during downturns. The measures are expected to especially benefit lower-skilled employees, who tend to lose jobs relatively faster during downturns.

  • Employment protection: The new reform introduces mandatory caps for compensation for unfair dismissals and limits the time for labor-court appeals, even as severance pay was increased. Besides facilitating firms’ response during downturns, this reform is expected to remove remaining legal uncertainties that were reported as major impediments for firms to hire under permanent contracts, thus supporting employment and reducing labor-market duality.

  • The tax reforms enacted with the 2018 budget reduced the labor tax wedge by replacing the employee social contribution for health and unemployment insurance with an increase in a general tax, and by converting the CICE tax credit given to firms into a permanent cut in employers’ social contributions for low wage earners.7 These measures, together with a reduction in the corporate income tax from 33 to 25 percent until 2022 and reforms simplifying capital taxation, should help support employment, stimulate investment, and boost cost competitiveness.

14. A second stage of labor-market reforms expected this summer should improve the employment prospects of low-skilled workers. The reforms focus on addressing the skills mismatches that have hampered the labor market in France, affecting in particular the young and disadvantaged groups. At the root of the problem has been a costly but inefficient training system, where individuals had limited decision power regarding their career improvement, while firms, especially smaller ones, had equally limited say in the design of training programs and the financing and governance of the system was complex and non-transparent. An educational system that results in weaker average performance relative to peers and higher drop-out rates from tertiary education without alternative professional options for those left out has compounded the problem.


Importance of Barriers to Hiring

(Share of firms reporting respective barrier)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Sources: Insee, enquêtes de conjoncture d’octobre 2017.
  • The reforms of the apprenticeship and professional-training systems aim to better match training to firms’ needs by putting companies more at the center of training provision, strengthen individuals’ rights through “portable training accounts,” and provide stronger incentives for young apprentices (e.g. higher pay, tax-free overtime work, career coaching). They also aim to enhance governance by establishing a new national regulatory agency in charge of verifying the quality of training and by simplifying and centralizing the management of training funds raised through social security contribution. Given that the new training systems will take time to be fully operational, the government has also dedicated specific funds (€15 billion) to use during 2018-22 for the training of 1 million youth and 1 million long-term unemployed. These measures are expected to support employment, reduce labor market duality, and provide opportunities for disadvantaged groups, reducing pockets of inequality (Box 2).

  • Ongoing education and other reforms will reduce class size in primary schools in disadvantaged areas and overhaul access to higher education by reforming the baccalaureate system and better linking university entry with qualifications. These reforms should improve educational outcomes and reduce drop-out rates, thus fostering a better matching of individual qualifications with educational opportunities, which can help facilitate integration of youth into the labor force. Together with the primary school measures, they are also expected to help provide better opportunities and chances of employment for vulnerable groups in disadvantaged areas. Planned changes to the unemployment insurance system aimed at strengthening sanctioning and monitoring may also help to raise incentives to better utilize training opportunities and return to work.


France and OECD Relative Educational Outcomes, 2015

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Sources: PIAAC Survey and OECD.

15. Complementary product- and service-market reforms will generate synergies and boost competitiveness and long-run growth. The recent reform restructuring the public railway company and improving its financial viability, which is similar to previous reforms in Germany and Italy, will be important to support competition and improve services while lowering costs for consumers. Building on previous governments’ reforms and other recent measures, the authorities are working on a new reform to support the business environment (expected by end-2018) aiming to: (i) facilitate firm creation and firm growth by continuing to simplify administrative burdens, introducing a one-stop shop for firm registration, and simplifying debt-restructuring procedures for small firms; (ii) facilitate compensation schemes linked to firm performance, which can help provide further flexibility to firms to adjust compensation depending on economic performance; (iii) further privatize state-owned firms (e.g. Paris Airport, Engie, state lotteries) not only to enhance economic efficiency, improve quality and lower costs, but also to help finance programs to support innovative technologies; and (iv) raise incentives to save for retirement and reduce obstacles to job mobility by increasing the portability of pension products and favoring equity finance.


Burden of Gov. Regulation on Firm Entry and Growth

(1 =Extremely burdensome; 7=Not burdensome at all)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Source: 2017 Global Competitiveness Report by the World Economic Forum.

16. While these reforms can support an improvement in competitiveness, they will need to be implemented resolutely, monitored carefully, and reinforced as needed. The above-mentioned reforms should boost competitiveness and exports and help bring the current account to around balance in the medium term, narrowing the gap relative to France’s estimated norm (of a 1 percent of GDP surplus). Since some of these reforms will take time to become fully operational (e.g. training and educational reforms), while others depend on distinct decisions and take up by individual firms (collective bargaining), continuous monitoring of their effectiveness will be key going forward. The authorities could also consider further measures to support growth, especially if the envisaged reforms not produce the desired effects, which could include:


Minimum Wage

(Percent of median wage of full-time workers)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Source: OECD.
  • Better integrating apprenticeship and education reforms to improve the quality of education in vocational high-schools and pre-apprenticeship programs for vulnerable groups, two areas that are not significantly impacted by the ongoing reform. Raising the quality of education and training in vocational schools and better combining it with apprenticeships in firms (as in Austria, Germany, or Switzerland) would help align the skills of young workers with business needs and incentivize the firms providing the training to hire the apprentices once they graduate.

  • Expanding firm-level flexibility in setting base wages, which for now have been excluded from the current reform. Since base wages are the main component of total compensation, this measure can further help firms to tailor wage costs to cyclical and individual firm conditions, while protecting employment, particularly for disadvantaged groups, whose wages are closer to the base level.

  • Re-evaluating and restricting the scope of the minimum-wage mechanism. The current mechanism links the minimum wage to both inflation and the average wage of less skilled workers, making France unique among OECD countries in this regard (of the 27 OECD countries that have a minimum wage, only four have a mechanism governing its evolution, three of which link it only to inflation, while France links it to both inflation and wages). Delinking the minimum wage from the evolution of wages, which are in turn affected by minimum wages, and if necessary, also fully or partially from inflation, can help bring France closer in line with peers and support long-run competitiveness.

  • Re-examining the level and accumulation rate of unemployment benefits. While the initially planned unemployment benefit measures aimed to tighten monitoring, they did not intend to address the relatively generous benefit level, which dis-incentivizes employment. Should unemployment not decline as a result of current and planned labor market reforms, further measures, along the lines of the reforms undertaken in Germany, Norway, or Sweden, could include: (i) lengthening the work period that entitles one to claim unemployment benefits; (ii) reducing the maximum benefit level, which is currently the highest among peers; and (iii) avoiding the possibility to cumulate unemployment benefits over discontinued unemployment spells, which currently incentivizes both workers and employers to use precarious contracts.

  • Further reducing restrictions and barriers to competition in regulated professions. For example, pharmacies continue to retain a monopoly on the sale of basic drugs and are subject to strict restrictions on ownership and size, capital, distribution chains, and on-line sales. Removing these restrictions could reduce costs for consumers and boost productivity.

Selected Features of Unemployment Benefits

article image
Source: 2016 France Selected Issues Paper, IMF Country Report 16/228.

Authorities’ Views

17. The authorities reiterated their commitment to the planned structural reforms, which they saw as essential to support employment, growth, and competitiveness. Their strategy has been focused on a labor market, tax, and product market reforms that started last year and are now continuing, focused on helping firms expand, hire, and invest, including in new technologies, as well as on empowering individuals to improve their education and skills and improve their standard of living through better labor market prospects. They agreed that evaluating and monitoring reforms will be essential going forward. While they considered that the benefits from further reforms would be limited at this stage, they were open to further measures to support competitiveness in the future, if current reforms do not deliver the expected benefits.

B. Fiscal Policy: Credibly Reducing Spending and Public Debt

18. The fiscal deficit is projected to remain below 3 percent of GDP, while public debt will exceed 90 percent in the medium run, pointing to limited fiscal space to react to shocks under the EU rules. Tax reduction measures costing about 1 percent of GDP in net terms by 2020 have been enacted (or announced, in the case of a further reduction of the accommodation tax), which, together with a normalization of tax bases, are expected to lead to a decline in revenues in the medium run. Further spending reductions are projected to broadly offset the expected revenue decline in the medium term, on account of: (i) measures legislated in the 2018 budget law (0.6 percent of GDP); (ii) further announced measures expected to be included in the 2019 budget (also 0.6 percent of GDP, see text table); and (iii) an already legislated contractual approach with local governments, limiting their nominal spending growth to 1.2 percent per year through 2022 and allowing the state to apply sanctions in case of non-compliance (further savings of some 0.8 percent of GDP by 2022). In this context, public debt is expected to decline only gradually relative to GDP, reaching 92 percent by 2023, and to remain vulnerable to shocks, especially if historical macro-fiscal trends materialize (Annex IV). France still has some fiscal space to respond to shocks, but once EU rules are taken into account, the fiscal space is limited, as the deficit could again approach the 3 percent limit if downside risks materialize.

Baseline Expenditure and Tax Measures 1/

(Cumulative, in percent of GDP)

article image
Sources: Rapport Economique, Social et Financier 2018; Loi de Programmation des Finances Publiques 2018; and IMF staff estimates.

Measures are shown relative to a scenario with constant current primary spending net of unemployment benefits and tax credits, in percent of GDP.

Measures for 2018 are legislated in Loi de Programmation des Finances 2018-2022. Measures from 2019 onward are assumed to be legislated in the 2019 budget, except the contractual approach with the state, which is fully legislated through 2022.

Nominal growth rate according to 2018 Loi de Finances for 2018 (1.4 percent), 2019 (2.2 percent), and 1.2 percent from 2020.

Measures legislated in Loi de Programmation des Finances 2018-2022, and an additional (announced but not yet legislated) elimination of the accomodation tax for the 20 percent wealthiest households. Not shown are the replacement of part of SSC for employees with a generalized tax cut (starting in 2019) and the elimination of the CICE tax credit (in 2020) with a reduction in the employers’ SSC (in 2019), which are budget neutral in the medium run.

19. The authorities aim to reduce debt below 90 percent of GDP and the structural deficit to 0.4 percent by 2023 through spending reforms, but have yet to specify them. The high level of public debt could weigh on medium-term growth prospects and allows little room for maneuver in case of shocks. A lower fiscal deficit would not only help to generate fiscal space but also contribute to reduce the external imbalance. Thus, putting debt on a sustained downward path is a policy priority, and requires tackling the root cause of the problem, which has been the large and growing level of public spending. To this end, the authorities have launched: (i) discussions on a civil service reform including increased reliance on fixed-term contracts, a plan for voluntary departures, enhanced mobility options, and a merit-based pay system; (ii) consultations on a pension reform simplifying and unifying different special regimes; and (iii) a spending review by an expert-led Commission expected to identify further efficiency gains. However, fiscal risks remain significant, as remaining reforms will likely take time to be fully specified and legislated, and the legislated contractual approach with local governments may not be able to be fully enforced.

20. The needed spending reduction to place debt on a firm downward path is sizeable. To achieve the government’s debt and structural deficit objectives, spending as a ratio to GDP will need to decline by some 4.2 percent between 2017 and 2023 (41/2 percent in primary terms, excluding the conversion of the CICE into a tax cut). While this effort is larger than what France has achieved in the past, international experience indicates that such spending-based consolidations are not unprecedented (Box 3). Several other countries have managed similar or larger spending reductions through rationalization of wages and social benefits and containment of spending at the central and local government level. However, these efforts have been supported by strong growth (and full exchange rate flexibility), pointing to the importance of maintaining the structural reform momentum.


Episodes of Fiscal Consolidations

(Cumulative change in primary expenditures, in percent of GDP)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Sources: WEO and IMF staff estimates.

21. The credibility of the fiscal strategy hinges on the ability of the government to specify reforms early and implement them firmly. Staff recommends a spending reduction that is relatively frontloaded, amounting to around 1 percent of GDP in spending measures per year during 2019–20, with the effort gradually declining in the outer years. This implies an average real spending reduction (excluding tax credits) averaging 0.3 percentage points per year during 2019–22, compared to growth of 0.5 percentage points during 2012–16. It corresponds to a structural adjustment of around 0.4 percent of GDP per year in 2019–20 (net of the effect of the CICE reform), and of around 0.3 percent thereafter. Clarifying the plans for spending reforms early, starting with the 2019 budget, will be essential to support the credibility of the strategy and facilitate economic planning for economic agents. Given the size of the required adjustment, the authorities should resist pressures to reduce taxes further, especially housing taxes on more affluent households, which are neither supportive of growth nor of social objectives, and they should stand ready to take compensatory measures in case of overruns.

22. Spending reforms should focus on areas that can lead to the highest efficiency savings, while modernizing and improving the quality of spending. Spending reforms will also need to take a long-term perspective, in view of the challenges expected to be posed by population aging on pension and health spending, as the workforce financing these items will shrink. Specifically:8


Cumulative Change in Public Expenditures, 1980-2016

(Percent of GDP)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

1/ Operating expenditures + GFCF.Sources: National Accounts, 2010 base, INSEE, and WEO.

Projected Fiscal Outturns

(In percent of GDP, unless otherwise noted)

article image
Sources: IMF staff estimates and 2018 France Stability Programme.Note: Recommended policies scenario assumes full implementation of spending reforms yielding total savings of about 4 percent of GDP (excluding CICE conversion) by 2022 and of additional labor and product market reforms broadly aligned with staff advice.

The conversion of the CICE (tax credit) into a tax cut reduces both taxes (sarting in 2019) and expenditures (starting in 2020). In 2019, firms will receive both a tax credit based on 2018 employment and the tax cut on current employment leading to a one-off effect.

  • Social benefits: While France has the highest level of social expenditure among OECD countries, outcomes in terms of reduction in inequality due to transfers are about the EU average. Moreover, social benefits in percent of GDP tended to evolve asymmetrically over the cycle during successive governments: they increased during downturns but did not decline as much in upturns. This suggests that there is scope to better target social benefits to those who need it when they need it, including through better means-testing (e.g. housing, family benefits). Efficiency savings could also be obtained by addressing the fragmentation of social programs across levels of government.

  • Health system: Health spending in France is high compared to peers, and population aging poses further challenges going forward. In this context, it will be important to achieve efficiency savings, including by further centralizing health procurement, enhancing the use of generic medicines, rationalizing hospital and primary care, better integrating various levels of care, and strengthen cost-effectiveness evaluation.

  • Tax expenditures: Firms and individuals benefit from sizeable tax exemptions/rebates for investments, including for real estate, life insurance, and other savings plans. Such tax expenditure benefits, which may create distortions in the allocation of savings toward most productive uses, could be rationalized and be made more efficient.9

  • Pension system: The pension system is complex (42 different mandatory retirement schemes), generous (high replacement rates compared to peers), and retains one of the lowest statutory retirement ages in Europe.10 The planned reform unifying different regimes and simplifying the system could also consider progressively raising the effective retirement age in line with longevity and closer to that of European peers either by raising the statutory age, or by providing actuarial incentives to increase the effective retirement age.

  • Civil service: The public-sector wage bill is sizeable, at about 13 percent of GDP, among the highest in Europe, largely due to a relatively high level of public employment (20 percent of the labor force). While public sector wages are not high compared to the private sector (for highly educated employees the wage gap is negative), mobility is low, and civil servants benefit from job protection through their special statute. The government’s planned reform, which aims to address these problems by facilitating mobility, relying on fixed contracts, and introducing a merit-based pay system, could be complemented by additional targeted reductions in the number of civil servants through attrition, for example by not replacing all retiring civil servants.

  • Local governments: Spending in local governments, has continued to rise, while some functions are duplicated between the state and local governments. In addition to current plans to introduce a ceiling on operating expenditures growth, merging sma municipalities and eliminating overlaps between local and central government’s functions, such that the state retains control over setting policies and their control, while local governments focus on implementation, could generate efficiency savings.


Spending on Goods and Services by Levels of Government

(Percent of GDP)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Source: Eurostat.

Social Spending and Macroeconomic Conditions

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Sources:INSEE, WEO and IMF staff estimates.

Public and Private Social Expenditure - Health (2013)

(Percent of GDP)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Source: OECD.

Retirement Age, 2016


Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Note: Men, labor market entry at 20 years old. Source: OECD (Pensions at a Glance).

General Government Wages and Employment, 2015

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Sources: Eurostat and OECD.

Authorities’ Views

23. The authorities reiterated their commitment to improve the efficiency of spending through comprehensive reforms, which would help achieve their medium-term debt and deficit objectives. They pointed to the positive fiscal developments in 2017, which are expected to pave the way for a decision on France’s exit from the Excessive Deficit Procedure (EDP) this summer. For the short term, they reiterated their commitment to maintain the deficit below the EDP limit. In the medium run, they acknowledged additional structural spending reforms would be needed at all levels of government to contain spending and reduce the deficit and debt, stressing that the focus will be on reviewing the role of the state and on efficiency savings, while preserving social protection. They welcomed staff’s suggestions on spending reforms and looked forward to the recommendations of the expert-led spending review to formulate further reforms.

C. Financial Sector Policies: Bolstering Private-Sector Balance Sheets

24. While banks have improved financial buffers and supported the recovery, areas of vulnerability remain (Figure 5). The large banks have bolstered capital ratios and maintained profitability in line with peers, notwithstanding lower net interest margins (partly linked to regulated deposit rates). But cost efficiency and liquid-assets to short-term liability ratios are lower than the euro-area median, and French banks remain dependent on wholesale funding (including in the USD market), making them vulnerable to maturity mismatches and exchange rate risks.11 Pressures on profits, which could also result from the rise of Fintech or from declining margins on mortgage portfolios refinanced at low fixed rates, may lead to more risk taking. Moreover, overall credit growth has been broad-based and higher than nominal GDP, leading to an increase in corporate debt and debt-service ratio, which could pose stability risks to banks and the economy if interest rates normalize faster than expected.12

Figure 5.
Figure 5.

Banking Sector: Key Indicators

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

25. The authorities’ recent decisions to activate macroprudential measures to prevent the buildup of imbalances are welcome. The decision, effective July 1, 2018, to lower banks’ exposures to large indebted corporates to 5 percent of banks’ capital is specifically aimed at protecting banks from potential risks arising from overindebted corporates and at limiting further growth of bank credit to these corporates (this measure has been unique in the Eurozone in addressing such potential risks). Similarly, the authorities’ recent decision to activate a % percent countercyclical capital buffer can help slow down the increase in debt, mitigate incipient systemic risk build-up, and help banks build buffers that could be released in the downward phase of the financial cycle to support activity. Going forward, the authorities should remain vigilant, monitor risks closely, and build on these measures if warranted. Further actions to incentivize equity rather than debt financing could also be considered, such as removing remaining tax deductions associated with interest payments.


Non-Financial Corporations Debt Service

(Percent of income)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Source: BIS.

26. Looking forward, efforts should continue to monitor risks and strengthen banks’ resilience through the implementation of ongoing international regulatory changes. The recent Basel requirements to set output floors for internal ratings-based credit-risk measures and implementation of the Minimum Requirement for own funds and Eligible Liabilities (MREL) will help strengthen bank balance sheets. Thanks to a recent law that introduced a new class of senior non-preferred bail-in-able debt, French banks are on track to comply with new EU regulatory requirements. The authorities’ recent decision to allow for a formula-based alignment of the regulated savings rate to inflation and market interest rates from 2020 onwards is expected to improve banks’ net interest margins. Continued efforts to reduce administrative costs through consolidation of bank branches should further support profitability.13

Authorities’ Views

27. The authorities agreed with the assessment. They noted that the French banking system is sound and has improved its capitalization and funding structure, which should help it weather shocks. This being said, they concurred with the need to continue to implement ongoing global and EU-wide regulatory changes to further build buffers, noting that French banks are well on track with their MREL commitments. The authorities also agreed with the relevance of the countercyclical buffer’s activation as a preventive measure in the context of robust growth, which they forecasted to continue over the next quarters, and in response to the loose financing conditions and to the buildup of private debt. They noted that the various measures being implemented or being considered have a medium-term perspective, and that coordination with the relevant European authorities is important in the development and effectiveness of macroprudential policy.

Staff Appraisal

28. France has benefitted from a broad-based recovery. Importantly, job growth is picking up, and the fiscal deficit has fallen below the 3 percent-of-GDP threshold for the first time in a decade. Growth is expected to remain robust in the near term, albeit less buoyant than its peak in 2017, on the back of strong investment, consumption, and exports. Past and ongoing reforms are expected to support the economy’s long-term growth potential.

29. But structural challenges persist and risks are rising. Domestically, the economy still suffers from high structural unemployment, weak competitiveness, and high public and private debt burdens. These not only limit improvements in living standards but also hamper the economy’s ability to respond to external shocks, at a time where risks are rising, linked to increasing trade tensions, geopolitical uncertainty, and other political risks in Europe.

30. Thus, reform efforts need to continue to ensure the recovery is long lasting and the economy is resilient to shocks. The government has established a substantial initial track record of reforms, and the policy agenda ahead is equally ambitious. Looking forward, the reforms will need to focus on durably addressing remaining challenges. Strong, job-rich, and inclusive growth can also support the reduction of private and public debt burdens.

31. Further labor market reforms are key to reducing unemployment. Building on the recent important reforms of the labor code and taxation, the authorities need to implement the remaining planned reforms of the training and apprenticeship systems to reduce skills mismatches, lower structural unemployment, and improve job opportunities for disadvantaged groups. Further measures could be considered, especially if envisaged reforms do not produce the desired effects, to facilitate wage setting in line with productivity, reinforce training for the youth, and strengthen the work incentives of the unemployment system.

32. Lowering regulatory barriers would help firms to support growth and increase employment. In addition to the recent reform restructuring the railway sector and opening it up to competition, the authorities need to implement further planned measures (Loi Pacte) to support business growth and innovation. Going further in liberalizing regulated professions (e.g. pharmacies) can reduce costs and improve quality and consumer choice.

33. Putting public debt on a firm downward path requires further efforts to permanently reduce public spending. Spending reforms at all levels of the government will be needed to support the authorities’ appropriately ambitious debt and deficit-reduction objectives. This can also be an opportunity to reevaluate how public services are provided and modernize and enhance their efficiency. To support the credibility of the strategy, reforms will need to be specified early, starting with the 2019 budget.

34. Efforts should continue to strengthen private-sector balance sheets. While the banking system is now stronger, and has been able to support the recovery, vulnerabilities remain, especially associated with the increase in private sector debt, particularly in the corporate sector. In this regard, recent macro-prudential measures aimed at reducing imbalances are welcome. Looking forward, efforts should continue to monitor vulnerabilities and build bank buffers against shocks, including through the implementation of ongoing international regulatory changes.

35. These policy efforts would also reduce France’s external vulnerabilities. France’s external position is assessed to be moderately weaker than that implied by fundamentals and desired policies. Recent and planned labor and product and service market reforms enhancing firms’ productivity and facilitating an adjustment of labor costs in line with productivity, together with recent tax reforms reducing the labor tax wedge should help increase France’s competitiveness. Together with planned fiscal consolidation, they can help reduce external imbalances further.

36. It is proposed that the next Article IV consultation take place on the standard 12-month cycle.

Estimating France’s Output Gap

Staff relies on a combination of analytical tools and judgement to assess the output gap. The main analytical tool employed by staff is a multivariate filter (MVF), which is a time-series model of output, potential output, the unemployment rate and the NAIRU, and is estimated using Bayesian techniques. The model embeds a Phillip’s curve relating the inflation process to the output gap to better identify demand shocks, as well as an Okun’s law relationship allowing deviations of actual unemployment from the NAIRU to inform the output gap estimates. While the MVF is a key tool for the assessment of the output gap, staff also takes into account other measures of the economy’s cyclical position, which include indicators for economic slack (e.g. capital utilization, survey data on hiring difficulties, or underemployment rates), as well as estimates obtained from other statistical approaches, as e.g. the Hodrick Prescott filter (HP filter) applied directly to output, or filters applied to the key labor, capital, and productivity inputs using a production function approach (PF).1


Output Gap Estimates

(Percent of potential output)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Source: IMF staff calculation.

An ex-post evaluation of historical real-time estimates for European countries and found a tendency toward negative output gaps. Staff’s analysis is based on estimates published in vintages of the IMF’s World Economic Outlook (WEO) from 1994 to the Fall 2017. For France, the analysis shows that real-time output gap estimates have been generally large and negative over prolonged periods of time, averaging -2 percent of GDP during 1994-2015. This stands in contrast to current estimates obtained from applying the MVF to the latest (Fall 2017) data vintage, which average -1 percent. This tendency for negative output gaps in real-time estimates is not unique to France, but is observed across euro area countries, is particularly prominent among high-debt countries, and persists even when the global financial crisis is excluded from the sample. Staff’s analysis suggests that it is to a large part explained by two factors: (i) an optimistic bias in the medium-term forecast used to extend the MVF’s sample period, and (ii) judgmental deviations from MVF estimates motivated by a broader assessment of a country’s cyclical position.

The output gap for France has been reassessed to have been largely closed in 2017. This reassessment takes into account the tendency observed in real-time estimates for negative estimates. But an equally important part of this reassessment has been a careful analysis of economic indicators that could shed light on the cyclical situation and the size of the output gap. Specifically, capital utilization has increased steadily since 2013, and the share of firms reporting that their current staff size constraints them in raising output reached its highest level since 2002. Across all sectors, hiring difficulties started to become more pronounced since 2016, and have reached their 2007 levels in the industry and service sectors. This was mirrored by a reduction in underemployment, suggesting that firms increase hours at the intensive margin. Taken together, these indicators and the results of the multivariate filter suggest that the output gap was largely closed in 2017, which is broadly in line with the authorities’ assessment.

1/ For a more detailed description of the methodology, see “Potential Output in France, Germany, and Spain: A Re-Assessment,” IMF Country Report No. 15/233.

Inequality and Labor Market and Fiscal Policies in France

France’s aggregate income inequality is around the OECD average. After having increased during the crisis, inequality has returned to its pre-crisis level, and is at similar levels as in Germany. However, this aggregate picture masks important differences across generations and socio-economic groups, which have been linked to labor market rigidities and have been exacerbated by the recent crisis.

Relative youth poverty is much higher than that of the elderly, and has gone up more recently, while elderly poverty declined steadily. Like elsewhere in the Europe, this reflects a rising gap between the incomes of the elderly, which have been better protected during the crisis by the generous pension system, and those of young workers, who have suffered from relatively higher unemployment rates or, if employed, from lower wages, given reliance on temporary and part-time work contracts (see IMF, 2018. Inequality and Poverty Across Generations in the European Union. SDN/18/01).


Gini Coefficient of Equivalised Disposable Income

(Scale from 0 (complete equality) to 100 (complete inequality))

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Source: Eurostat.

People at Risk of Poverty or Social Exclusion by Age

(Percent of specified population)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Source: Eurostat.

Along with the youth, the low-skilled, and non-EU immigrants have had a lower labor market performance compared to prime-age native workers, which has been exacerbated by the crisis.2

Specifically, workers with low educational attainment (below upper secondary) have tended to be between 30-50 percent less likely to find a job compared to more educated groups, while non-EU migrants face even worse job prospects (probability almost three times as large as the probability of being unemployed faced by prime-age native workers).1 As a result, these vulnerable socio-economic groups have fallen into the lower percentiles of the income distribution and are experiencing a higher relative risk of poverty than other groups. Specifically, the relative poverty risk for non-EU immigrants is about three times as large than that of prime age workers, while the relative poverty for the low-skilled is about 50 percent higher than for other groups.

article image

Coefficients indicate the margins (change in the probability of being unemployed) compared to the base category, for rows of base categories where they represent the probabibility to be unemployed. All probabilities are the factors above and the following: gender, household composition, and vocational training status.

Countries with mild labor market impact following the 2008 crisis: Austria, Belgium, Netherlands, and U.K..

Countries with significant labor market impact following the 2008 crisis: Italy, Ireland, Portugal, and Spain.

In a Euro Area cross-country comparison, the weak labor market performance of vulnerable groups has been shown to be linked with labor market rigidities. These rigidities include a higher labor tax wedge and a relatively higher minimum wage, which penalize the youth, migrants, and low skilled.2 Against this background, the recent and upcoming labor market reforms could help address these pockets of inequality. For example, the reform of professional training and apprenticeship promises to enhance the incentives given to businesses to hire youngsters in such neighborhoods could boost their income prospects and raise social mobility over time. In the interim, the government aims to invest €15 billion in the training of one million youngsters neither in education nor in employment and one million long-term unemployed. These measures could have a more immediate effect in reducing the dispersion of market income for these vulnerable groups, to the extent that they can permanently affect the employability of these groups.

On the fiscal front, France’s tax and benefit system is relatively more effective at redistributing market income as Germany’s or the Nordic countries’. Reforms passed in 2014-2016, such as the increase in the tax rebate for couples, the introduction of new mean-tested benefits and better targeting of family allowances are expected to reduce France’s net income inequality.3 More recent fiscal reforms replacing part of the employee social contributions with an increase in a general income tax on both workers and retirees could also help to address intergenerational inequality and mitigate the negative impact on inequality of other recent tax measures, such as the reduction in wealth taxes.


Difference in Gini Before and After Taxes and Transfers

(Percentage points; Difference of Gini on scale of 0% (equality) to 100% (inequality))

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

Note: For total population, 2015 data.Source: OECD (Income Distribution Database).
1/The probability of finding a job is computed as the ratio of marginal probabilities of being unemployed relative to the marginal probability for the base (25-54 years).2/Also see N. Batini, W. Gbohoui, C. Mummsen, “Explaining Unemployment in the Euro Area: A Cross-Country Analysis of Vulnerable Groups Using Micro Data,” 2018.3/Also see Euromod, 2017,

Large Fiscal Consolidations: How Successful Have They Been?

Experience with spending-based fiscal consolidations in France has been mixed.1 In the three notable adjustment episodes since 1980, two were relatively more successful, with spending reductions of around 2.5-2.8 percent of GDP, while the latter episodes were not able to achieve their objectives. Specifically:

  • Virage de la rigueur. Launched in 1983, it took place in the context of a rapid deterioration of the fiscal position, inflationary pressures, and a large deterioration of the current account. The measures taken included broad-based spending restraints, including the wage bill, at the central government level and social security administrations, and restraint in social benefits. Primary expenditures to GDP were reduced by 2.8 percentage points between 1985 and 1989.

  • EMU entry. In 1994, a five-year Guidance Law on Public Finance Control was adopted, including multi-year objectives, such as a real primary spending targets. While objectives were not met initially, spending restraint was successful starting 1996, thanks to a mix of declines in capital spending, a freeze of the pay scale of civil servants, and cuts in defense spending and social transfers. As a result, the ratio of primary expenditures to GDP declined by 2.5 percentage points between 1996 and 2000.

  • EDP-related fiscal consolidations (2003–07). To keep the fiscal deficit below the 3 percent EDP target, France undertook measures involving a legally binding zero real spending growth at the central government level, as well health and pension reforms. However, overall spending did not decline, as restraint at the central government level was offset by overruns at the local level, and in social benefits.


France’s Consolidation Episodes: Contributions to Spending Restraints (from peak year)

Citation: IMF Staff Country Reports 2018, 243; 10.5089/9781484371053.002.A001

In international comparison, large fiscal consolidations are not unprecedented. Blöchliger, H., D. Song and D. Sutherland (2012), identify eight consolidation episodes involving a reduction in primary expenditures of at least 4 percent of GDP within 5 years starting from a peak year.2,3 The average primary spending reduction across these eight episodes averaged 7.2 percent of GDP. A notable feature of these episodes is that they were accompanied by relatively strong real GDP growth (averaging almost 3 percentage points) and full exchange rate flexibility. The three largest spending reductions were those of Sweden, Finland and Canada:

  • Sweden, (1993): the spending based consolidation (12 percent of GDP) followed a sharp recession. Current central government spending was frozen for three years and transfers to local governments were frozen at their nominal 1994 level until 2000 and local government borrowing was barred. Various social benefits were reduced and eligibility tightened. The consolidation was achieved in the context of average real growth of about 3 percentage points.

  • Finland, (1993): the fiscal consolidation (11 percent of GDP) followed a financial crisis. The strategy involved substantial cuts in the government wage bill, social security payments and transfers to local governments. Real growth averaged close to 5 percent during this period.

  • Canada, (1992): The consolidation (8 percent of GDP) followed a deterioration in growth and fiscal positions, and was based on reducing spending both at the central and local government levels by reducing the wage bill, reforming unemployment insurance and reducing benefits reduced, and improving control of inter-governmental transfers. Real growth was around 3 percentage points.

Episodes of large fiscal consolidations

article image
Sources: WEO and IMF staff calculations.

Reduction over 2017-2023, excluding CICE tax credit.

Excluding CICE tax credit.

The needed reduction in spending to achieve France’s medium-term objective and put debt on a sustained downward part is significant. It is estimated at 4.2 percent of GDP, excluding the conversion of the CICE, and 4% percent in primary spending terms (excluding tax credits), which is larger than previous consolidations in France, but still below the median in the cross-country sample analyzed. However, the expenditure restraint is expected to take place in lower real growth environment compared to all of these episodes. This underscores the importance of deepening growth-enhancing structural reforms, which can reinforce the success of the fiscal strategy in reducing public debt.

1/ E. Martin, I. Tytell, and I. Yakadina, “France: Lessons from Past Consolidation Plans,” IMF Working Paper WP/11/89, 2011.2/ H. Blôchliger, D. Song, and D. Sutherland, “Fiscal Consolidation: Part 4. Case Studies of Large Fiscal Consolidation Episodes,” OECD Economics Department Working Papers, No. 935, 2012.3/ Also see V. Aussilloux, C. Gouardo, and F. Lenglart, “Baisser le Poids des Dépenses Publiques: les Leçons de l’Experience des Pays Européens” Note d’Analyse N.67, France Stratégie, 2018, which assess spending-based consolidation episodes of at least 3 percent of GDP.
Table 1.

France: Selected Economic and Social Indicators, 2014-23

article image
Sources: Haver Analytics, INSEE, Banque de France, and IMF Staff calculations.
Table 2.

France: General Government Accounts, 2014-23

(In percent of GDP unless otherwise indicated)

article image
Sources: INSEE and IMF Staff calculations.

Maastricht definition.

In percent of potential GDP.

The debt figure, based on Maastricht definition, does not include guarantees on nongeneral government debt.

The conversion of the CICE (tax credit) into a tax cut reduces both taxes (starting in 2019) and expenditures (starting in 2020). In 2019, firms will receive both a tax credit based on 2018 employment and the tax cut on current employment leading to a one-off effect.

Table 3.

France: Balance of Payments, 2014-23

(In percent of GDP)

article image
Sources: Haver Analytics, Banque de France, and IMF Staff calculations.