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IMF Country Report No. 24/216
FRANCE
2024 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR FRANCE
July 2024
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 2024 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 June 27, 2024, 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 June 27, 2024, following discussions that ended on May 23, 2024, 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 June 17–18, 2024.
An Informational Annex prepared by the IMF staff.
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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© 2024 International Monetary Fund
Press Release
PR24/271
IMF Executive Board Concludes 2024 Article IV Consultation with France
FOR IMMEDIATE RELEASE
WASHINGTON, DC – July 12, 2024: On June 27, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation1 with France.
A strong and timely policy response helped cushion the impact of the COVID19 pandemic and the energy crisis resulting from Russia’s war in Ukraine. Despite a recovery slowdown in 2023, the French economy has remained relatively resilient in the face of financial tightening and weaker euro area external demand. Real GDP grew by 1.1 percent in 2023, supported by net exports, while investment surprised on the downside and consumption remained weak. Inflation continued to decline since its peak in early 2023, despite some volatility from the unwinding of the energy support measures and delayed wage adjustments.
The crisis response and slower-than-expected recovery have weighed on public finances, with a sizable fiscal underperformance in 2023 reducing fiscal space at a time of rising investment needs for the green and digital transformation. The fiscal deficit in 2023 was 5.5 percent of GDP, exceeding the authorities’ budget plans, as revenues fell short. The 2024 budget envisaged a sizable consolidation, helped by the unwinding of purchasing power measures, while making space for new spending in critical areas. However, given the sizable 2023 underperformance and weaker recovery, the 2024 budget target has been revised to 5.1 percent of GDP. The reforms of the pension and unemployment benefit systems have started to yield results. Labor market performance has remained robust, although labor productivity remains below its pre-COVID trend. The French banking system has remained resilient, with adequate capital and liquidity buffers, notwithstanding a compression in net interest margins.
Growth is projected to gradually reach 1.3 percent by 2025 from 0.9 percent in 2024. The disinflationary process is on track, with headline inflation expected to reach 2.3 percent in 2024 and return to target in the first half of 2025. Over the medium term, growth is projected to converge towards its potential rate of 1.3 percent. The outlook remains subject to high uncertainty. Political fragmentation and policy uncertainty domestically could delay fiscal consolidation and reform efforts, weighing on confidence and public finances. External downside risks, including escalating geopolitical tensions and an abrupt global slowdown in key trading partners, could also significantly impact the outlook. In contrast, faster reform momentum in France and at the EU level could mitigate these risks.
Executive Board Assessment2
Executive Directors noted that the French economy had remained resilient in the face of recent shocks and welcomed the gradual recovery. Nevertheless, Directors recognized that the crisis response and slower-than-expected growth had weighed on public finances, reducing fiscal space at a time of rising investment needs for the green and digital transitions. Against this backdrop, they agreed with the shift in focus towards rebuilding fiscal buffers and achieving a sustainable modernization of the economy.
Directors agreed on the importance for the French authorities to identify a well-specified and credible package of measures to underpin their fiscal consolidation plans. They emphasized the need for substantial additional efforts to bring the deficit below 3 percent of GDP by 2027 and set debt firmly on a downward trajectory. Directors stressed that the adjustment would help strengthen France’s resilience to shocks noting how the future evolution of public finances remains exposed to an increase in sovereign spreads or a reduction in growth. Directors agreed that the fiscal consolidation should focus on rationalizing current spending, while preserving room for growth-friendly investment.
Directors recognized the authorities’ proactive efforts to strengthen the resilience of the banking system and mitigate systemic risks. They welcomed the supervisors’ reliance on prudent lending standards as well as the higher countercyclical buffer and systemic risk buffer against highly indebted firms. While recognizing the limited direct banks’ exposures, Directors called for continued monitoring of vulnerabilities in real estate investment funds. They supported France’s ongoing efforts to integrate climate transition risk into banks’ governance, strategy, and risk management processes.
Directors commended France for the significant progress towards reducing greenhouse gas emissions, while noting the need for further efforts to meet key mitigation targets. They recommended complementing ongoing spending efforts with other revenue-neutral schemes and higher carbon pricing, whose revenue could be recycled to minimize distributional impacts.
Directors commended the important reforms to the pension and unemployment benefit systems and stressed the need to continue to advance structural reforms to support jobs and raise productivity. They welcomed ongoing efforts to promote longer and less fragmented careers, while noting the importance of education and training reforms to prepare workers for the green and digital transformations. Directors supported plans to revamp parental leave, while supporting provision of childcare facilities, which could further boost labor force participation by women.
Directors emphasized the importance of continuing to safeguard and deepen the single market, amid ongoing geopolitical and economic transitions. They welcomed ongoing efforts to address France’s own structural growth challenges, while enhancing capital market integration and fostering efficient investment allocation at the EU level. Directors emphasized that industrial policies to support critical industries should be pursued cautiously and coordinated closely at the EU level.
Directors commended the authorities for France’s leadership in multilateral cooperation and looked forward to their continued leadership in addressing global challenges.
France: Selected Economic Indicators, 2021–26
(Annual percentage change, unless noted otherwise)
France: Selected Economic Indicators, 2021–26
(Annual percentage change, unless noted otherwise)
| Projection | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | ||||
| Real economy (change in percent) | |||||||||
| Real GDP | 6.8 | 2.6 | 1.1 | 0.9 | 1.3 | 1.5 | |||
| Domestic demand | 6.0 | 2.9 | 0.6 | 0.3 | 1.2 | 1.2 | |||
| Foreign balance (contr. to GDP growth) | 0.7 | -0.3 | 0.5 | 0.6 | 0.1 | 0.3 | |||
| CPI (year average) | 2.1 | 5.9 | 5.7 | 2.3 | 1.8 | 1.8 | |||
| GDP deflator | 1.3 | 3.2 | 5.1 | 2.6 | 2.0 | 1.9 | |||
| Public finance (percent of GDP) | |||||||||
| General government balance | -6.6 | -4.7 | -5.5 | -5.2 | -5.0 | -4.6 | |||
| Revenue | 52.9 | 53.7 | 51.5 | 51.4 | 51.4 | 51.4 | |||
| Expenditure | 59.5 | 58.4 | 57.0 | 56.7 | 56.4 | 56.0 | |||
| Primary balance | -5.2 | -2.9 | -3.7 | -3.4 | -3.0 | -2.4 | |||
| Structural balance (percent of pot. GDP) | -5.1 | -4.1 | -4.9 | -4.8 | -4.6 | -4.3 | |||
| General government gross debt | 112.6 | 111.1 | 109.9 | 111.3 | 112.8 | 113.5 | |||
| Labor market (percent change) | |||||||||
| Employment | 1.8 | 2.0 | -0.1 | 0.1 | 0.4 | 0.2 | |||
| Labor force | 1.6 | 1.4 | 0.0 | 0.1 | 0.0 | 0.0 | |||
| Unemployment rate (percent) | 7.9 | 7.3 | 7.4 | 7.4 | 7.0 | 6.9 | |||
| Credit and interest rates (percent) | |||||||||
| Growth of credit to the private non-financial sector | 4.5 | 5.7 | 3.6 | 0.9 | 1.8 | 3.0 | |||
| Money market rate (Euro area) | -0.5 | 0.1 | 3.3 | ... | ... | ... | |||
| Government bond yield, 10-year | 0.0 | 1.7 | 3.0 | ... | ... | ... | |||
| Balance of payments (percent of GDP) | |||||||||
| Current account | 0.4 | -2.0 | -0.7 | -0.3 | -0.5 | -0.4 | |||
| Trade balance of goods and services | -1.3 | -3.2 | -1.6 | -0.6 | -0.7 | -0.5 | |||
| Exports of goods and services | 31.2 | 36.3 | 34.5 | 34.1 | 33.8 | 33.3 | |||
| Imports of goods and services | -32.5 | -39.5 | -36.0 | -34.7 | -34.5 | -33.9 | |||
| FDI (net) | 0.5 | 0.4 | 1.5 | 1.3 | 1.2 | 1.2 | |||
| Official reserves (US$ billion) | 101.7 | 100.4 | ... | ... | ... | ... | |||
| Exchange rates | |||||||||
| Euro per U.S. dollar, period average | 0.82 | 0.95 | 0.92 | ... | ... | ... | |||
| NEER, ULC-styled (2005=100, +=appreciation) | 97.8 | 95.9 | 97.0 | ... | ... | ... | |||
| REER, ULC-based (2005=100, +=appreciation) | 92.8 | 93.3 | 97.1 | ... | ... | ... | |||
| Potential output and output gap | |||||||||
| Potential output (change in percent) | 4.2 | 1.4 | 1.2 | 0.7 | 1.2 | 1.4 | |||
| Output gap | -2.1 | -0.9 | -0.9 | -0.7 | -0.6 | -0.5 | |||
France: Selected Economic Indicators, 2021–26
(Annual percentage change, unless noted otherwise)
| Projection | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | ||||
| Real economy (change in percent) | |||||||||
| Real GDP | 6.8 | 2.6 | 1.1 | 0.9 | 1.3 | 1.5 | |||
| Domestic demand | 6.0 | 2.9 | 0.6 | 0.3 | 1.2 | 1.2 | |||
| Foreign balance (contr. to GDP growth) | 0.7 | -0.3 | 0.5 | 0.6 | 0.1 | 0.3 | |||
| CPI (year average) | 2.1 | 5.9 | 5.7 | 2.3 | 1.8 | 1.8 | |||
| GDP deflator | 1.3 | 3.2 | 5.1 | 2.6 | 2.0 | 1.9 | |||
| Public finance (percent of GDP) | |||||||||
| General government balance | -6.6 | -4.7 | -5.5 | -5.2 | -5.0 | -4.6 | |||
| Revenue | 52.9 | 53.7 | 51.5 | 51.4 | 51.4 | 51.4 | |||
| Expenditure | 59.5 | 58.4 | 57.0 | 56.7 | 56.4 | 56.0 | |||
| Primary balance | -5.2 | -2.9 | -3.7 | -3.4 | -3.0 | -2.4 | |||
| Structural balance (percent of pot. GDP) | -5.1 | -4.1 | -4.9 | -4.8 | -4.6 | -4.3 | |||
| General government gross debt | 112.6 | 111.1 | 109.9 | 111.3 | 112.8 | 113.5 | |||
| Labor market (percent change) | |||||||||
| Employment | 1.8 | 2.0 | -0.1 | 0.1 | 0.4 | 0.2 | |||
| Labor force | 1.6 | 1.4 | 0.0 | 0.1 | 0.0 | 0.0 | |||
| Unemployment rate (percent) | 7.9 | 7.3 | 7.4 | 7.4 | 7.0 | 6.9 | |||
| Credit and interest rates (percent) | |||||||||
| Growth of credit to the private non-financial sector | 4.5 | 5.7 | 3.6 | 0.9 | 1.8 | 3.0 | |||
| Money market rate (Euro area) | -0.5 | 0.1 | 3.3 | ... | ... | ... | |||
| Government bond yield, 10-year | 0.0 | 1.7 | 3.0 | ... | ... | ... | |||
| Balance of payments (percent of GDP) | |||||||||
| Current account | 0.4 | -2.0 | -0.7 | -0.3 | -0.5 | -0.4 | |||
| Trade balance of goods and services | -1.3 | -3.2 | -1.6 | -0.6 | -0.7 | -0.5 | |||
| Exports of goods and services | 31.2 | 36.3 | 34.5 | 34.1 | 33.8 | 33.3 | |||
| Imports of goods and services | -32.5 | -39.5 | -36.0 | -34.7 | -34.5 | -33.9 | |||
| FDI (net) | 0.5 | 0.4 | 1.5 | 1.3 | 1.2 | 1.2 | |||
| Official reserves (US$ billion) | 101.7 | 100.4 | ... | ... | ... | ... | |||
| Exchange rates | |||||||||
| Euro per U.S. dollar, period average | 0.82 | 0.95 | 0.92 | ... | ... | ... | |||
| NEER, ULC-styled (2005=100, +=appreciation) | 97.8 | 95.9 | 97.0 | ... | ... | ... | |||
| REER, ULC-based (2005=100, +=appreciation) | 92.8 | 93.3 | 97.1 | ... | ... | ... | |||
| Potential output and output gap | |||||||||
| Potential output (change in percent) | 4.2 | 1.4 | 1.2 | 0.7 | 1.2 | 1.4 | |||
| Output gap | -2.1 | -0.9 | -0.9 | -0.7 | -0.6 | -0.5 | |||
Title page
FRANCE
STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION
June 18, 2024
KEY ISSUES
Context. A strong and timely policy response helped cushion the impact of the COVID19 pandemic and the energy crisis resulting from Russia’s war in Ukraine. Despite a recovery slowdown in 2023, the French economy has remained relatively resilient in the face of financial tightening and weaker euro area external demand. Nevertheless, the crisis response and slower-than-expected recovery have weighed on public finances, with a sizable fiscal underperformance in 2023 reducing fiscal space at a time of rising investment needs for the green and digital transformation. While financial conditions started improving in early 2024, market pressures on sovereign spreads and stock markets rose in early June following the European elections amid political uncertainty. Labor market performance has remained robust, although labor productivity remains below its pre-COVID trend. Against this backdrop, the French authorities have appropriately shifted their focus towards rebuilding buffers and achieving a sustainable modernization of the economy. The reforms of the pension and unemployment benefit systems have already started to yield results. Parliamentary elections are scheduled for June 30 and July 7. The Staff Report was completed on June 17.
Outlook and risks. Growth is projected to gradually reach 1.3 percent by 2025 from 0.9 percent in 2024. The disinflationary process is on track, with headline inflation expected to reach 2.3 percent in 2024 and return to target in the first half of 2025. The outlook remains subject to high uncertainty. Heightened political fragmentation and policy uncertainty domestically could delay fiscal consolidation and reform efforts, weighing on confidence and public finances. External downside risks, including escalating geopolitical tensions and an abrupt global slowdown in key trading partners, could also significantly impact the outlook. In contrast, faster reform momentum in France and at the EU level could mitigate these risks.
Policies. Staff’s main policy recommendations are as follows:
Fiscal Policy. France’s Stability Program (PSTAB) objective of bringing the deficit below 3 percent of GDP by 2027 remains appropriate to set debt firmly on a downward trajectory. Nevertheless, substantial additional efforts will be needed, starting in 2024, to achieve this goal, while making space for targeted growth-enhancing spending. For the rest of 2024, the French authorities should aim at identifying additional new measures, compared to staff’s current policy scenario, for about 0.4 percent of GDP. This would help improve debt dynamics while smoothing the adjustment in the outer years, reducing the potential negative effects on the economy. In parallel, as monetary policy eases, it can also help mitigate the contractionary impact of fiscal tightening. Over the medium term, under staff’s recommended scenario, sustained fiscal efforts—averaging almost 1 percent of GDP annually over 2025–27—will be needed to bring the deficit below 3 percent of GDP by 2027, as targeted in the PSTAB. This adjustment would strengthen France’s resilience to shocks and help rebuild adequate fiscal buffers to meet new spending demands. Building on the pension and unemployment benefits reforms as well as ongoing spending reviews, fiscal consolidation should remain focused on rationalizing current spending, while preserving room for growth-friendly investment, including on the green and digital transitions.
Financial Stability. The French banking system has remained resilient, with adequate capital and liquidity buffers, notwithstanding a compression in net interest margins. Despite a marked credit slowdown, the preponderance of fixed-rate loans has shielded the non-financial corporate and housing mortgage segments from the impact of tighter financial conditions. Prudent lending standards are supporting an orderly adjustment of the housing market, and the higher countercyclical buffer and the systemic risk buffer against highly indebted firms further mitigate risks to financial stability. Although banks’ direct exposures to the commercial real estate market are limited, vulnerabilities in real estate investment funds warrant continued close monitoring. French banks should continue to mitigate climate transition risks by integrating them into their governance, strategy, and risk management processes. A Financial System Stability Assessment is planned for France in 2025.
Structural Reforms. The French authorities should continue to advance structural reforms to support jobs and raise productivity, amid ongoing geopolitical and economic transitions. Ongoing spending efforts to accelerate the green transformation, while mitigating its costs and dislocations, can be complemented by other revenue-neutral schemes and higher carbon pricing, whose revenue can be recycled to minimize distributional impacts. Education and labor market reforms can prepare the labor force, across gender and age groups, for the green and digital transformations. While a complex balancing act, France should continue to foster an innovative domestic industry and rise to the challenge of the climate transition, while remaining committed to multilateralism and fiscal discipline. The authorities’ plans to address France’s structural growth challenges should continue to safeguard and deepen the European single market, with emphasis on horizontal efforts to support competitiveness, enhance capital market integration, and foster efficient investment allocation.
Approved By
Uma Ramakrishnan (EUR) and Martin Sommer (SPR)
Discussions took place in Paris during May 13–23, 2024. The staff team comprised Manuela Goretti (head), Roberto Piazza, Iulia Teodoru, Stephen Ayerst, Maryam Vaziri (all EUR), Rachel Lee (now SPR), and Nate Vernon (FAD), with assistance from Caroline Leroy and Xun Li (both EUR). Arnaud Buisse (Executive Director) joined the mission. Staff met with the Central Bank Governor Villeroy de Galhau; senior officials in the President and Prime Minister’s offices, various ministries, the Haut Conseil des Finances Publiques, and Members of Parliament; financial sector interlocutors, think tanks, trade union and employer association representatives. A press conference was held at the end of the mission.
Contents
CONTEXT
RECENT ECONOMIC DEVELOPMENTS
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Fiscal Policy: Reducing Debt while Modernizing the Economy
B. Maintaining Financial Sector Stability
C. Accelerating the Green Transition while Lifting Potential Growth
D. Voluntary Assessment of Transnational Aspects of Corruption
STAFF APPRAISAL
TABLES
1. Selected Economic Indicators
2. General Government Operations
3. Balance of Payments
4. Depository Corporations Survey
5. Vulnerability Indicators
6. Core Financial Soundness Indicators
ANNEXES
I. Authorities’ Response to Past Fund Policy Advice
II. 2019 Key FSAP Recommendations—Implementation Status
III. External Sector Assessment
IV. Projecting Medium-to-Long-Term Potential Output in France
V. Risk Assessment Matrix
VI. Sovereign Risk and Debt Sustainability Analysis
VII. Data Issues Annex
VIII. Transnational Aspects of Corruption
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chair of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings-up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.
