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FRANCE

STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION—SUPPLEMENTARY INFORMATION

January 19, 2023

Prepared By

This supplement reports on developments and provides information that has become available since the staff report was issued to the Executive Board. The thrust of the staff appraisal remains unchanged.

1. The latest high frequency indicators point to the continued resilience of the French economy. The French composite flash PMI decreased slightly to 48, driven by services, while manufacturing output improved (although it remains below 50 as well). The Banque de France’s latest business confidence survey (conducted Nov. 28-Dec. 5) suggests that economic activity has held up well in the major sectors, including industry, services, and construction, with business leaders expecting activity to remain stable in December. Furthermore, INSEE’s household confidence indicator remained relatively stable in December. Based on the survey and other indicators, GDP growth is estimated to be around 0.1 percent (q/q) in the fourth quarter of 2022. The resilience of the economy is also reflected in better-than-expected state revenue performance, with some €1bn in additional collection driven by corporate and personal income taxes. In December, HICP inflation fell to 6.7 percent year-on-year from 7.1 percent in November, as energy prices and, to a lesser extent, service prices slowed, suggesting that inflation may have reached its peak and gradually decline over 2023.

2. The government unveiled its pension reform plan, which faces strong public opposition. The plan—presented on January 10, 2023—aims to balance the pension system by 2030 and increase the employment rate of older workers by raising the minimum retirement age and minimum contribution period, while aligning special regimes with the general regime for new hires.¹ Workers with long careers, a disability/handicap or occupational disease, and arduous jobs will continue to be able to retire earlier, with access to such early retirement eased. The reform also envisages increasing minimum pensions to 85 percent of minimum wage for workers with a full career (about €100 increase to €1,200 per month) and complementary measures to enhance the employment of older workers. The latter includes: (i) easing access to partial retirement (retraite progressive); (ii) allowing retirees who return to work to continue acquiring rights; (iii) enhancing working time flexibility by introducing a universal time savings account (compte épargne-temps universel, CETU); (iv) changing rules regarding the accumulation of benefits and salary when job seekers resume work; and (v) introducing a “seniority index” to provide more transparency in firms’ hiring and other practices or policies for older workers. Many of these complementary measures will need to be fleshed out and negotiated with social partners. The government’s proposal has proven controversial and unpopular, and has been rejected by all major trade unions and by opposition parties on the far right and left. Nevertheless, the reform is likely to pass with the support of the conservative party (Les Republicains) that managed to extract some concessions. The unions have announced industrial action.

3. France is pushing forward with the law to accelerate the development of renewable energy. On January 10, 2023, Members of the Parliament in the lower chamber passed the ’Renewable Energy Acceleration Act’ proposed by President Macron’s government last fall which aims to promote renewable energy, including a 10-fold increase in solar capacity and building of 50 offshore wind plants by 2050. The law is now subject to compromise talks between Members of Parliament and senators before being approved.

^{Table 1.}

France: Selected Economic Indicators, 2020-24

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

^{Table 1.}

France: Selected Economic Indicators, 2020-24

			Est.	Projections
	2020	2021	2022	2023	2024
Output (%)
Real GDP growth	-7.9	6.8	2.6	0.7	1.6
Nominal GDP (billions of euros)	2,310	2,499	2,631	2741	2871
Employment (%)
Unemployment rate	8.0	7.9	7.5	7.6	7.5
Prices (year average, %)
Inflation	0.5	2.1	5.9	5.0	2.8
General government finance (% GDP)
General government balance	-9.0	-6.5	-5.0	-5.3	-4.8
Revenue	52.5	52.5	53.5	52.8	51.6
Expenditure	61.5	59.1	58.4	58.1	56.4
Structural balance (percent of pot. GDP)	-5.8	-5.2	-4.4	-4.5	12.2
Primary balance	-7.8	-5.2	-3.2	-3.7	-3.1
General government gross debt	114.7	112.6	111.6	112.0	112.2
Balance of payments (% GDP)
Current account	-1.8	0.4	-1.5	-1.6	-1.0

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

View Table

^{Table 1.}

France: Selected Economic Indicators, 2020-24

			Est.	Projections
	2020	2021	2022	2023	2024
Output (%)
Real GDP growth	-7.9	6.8	2.6	0.7	1.6
Nominal GDP (billions of euros)	2,310	2,499	2,631	2741	2871
Employment (%)
Unemployment rate	8.0	7.9	7.5	7.6	7.5
Prices (year average, %)
Inflation	0.5	2.1	5.9	5.0	2.8
General government finance (% GDP)
General government balance	-9.0	-6.5	-5.0	-5.3	-4.8
Revenue	52.5	52.5	53.5	52.8	51.6
Expenditure	61.5	59.1	58.4	58.1	56.4
Structural balance (percent of pot. GDP)	-5.8	-5.2	-4.4	-4.5	12.2
Primary balance	-7.8	-5.2	-3.2	-3.7	-3.1
General government gross debt	114.7	112.6	111.6	112.0	112.2
Balance of payments (% GDP)
Current account	-1.8	0.4	-1.5	-1.6	-1.0

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