International Monetary Fund country report - France (ENG)

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Description

On the back of sizeable fiscal consolidation and low confidence,
the recovery stalled in 2012. Fiscal consolidation remains very substantial in 2013, and
output is projected to contract slightly this year and to grow moderately in 2014.
Structural rigidities in labor and product markets, and comparatively low profit shares,
have undermined the economy’s growth potential and contributed to loss of export
performance. On the positive side, credit conditions remain supportive, and private
demand is unencumbered by balance sheet repair issues and so is more apt to respond
favorably to an improvement in confidence

Sujets

• International Monetary Fund
• Fonds monétaire international
• France

Informations

• Publié par: Fil_Economie
• Publié le: 07 août 2013
• Nombre de lectures: 69
• Langue: English
• Poids de l'ouvrage: 2 Mo

Extrait

IMF Country Report No. 13/251
FRANCE
2013 ARTICLE IV CONSULTATION
August 2012

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 2013 Article IV consultation with France the
following documents have been released and are included in this package:

 Staff Report for the 2013 Article IV consultation, prepared by a staff team of the IMF,
following discussions that ended on June 3, 2013, 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 July 12, 2013. The views expressed in the staff report are
those of the staff team and do not necessarily reflect the views of the Executive Board of the
IMF.
 Informational Annex prepared by the IMF.
 Public Information Notice (PIN) summarizing the views of the Executive Board as
expressed during its July 25, 2012 discussion of the staff report that concluded the Article IV
consultation.
 Statement by the Executive Director for France (English and French versions are
included).

The document listed below has been or will be separately released.

Selected Issues Paper

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

Copies of this report are available to the public from

International Monetary Fund  Publication Services
th700 19 Street, N.W.  Washington, D.C. 20431
Telephone: [phone]  Telefax: [phone]
E-mail: [e-mail] Internet: http://www.imf.org


International Monetary Fund
Washington, D.C.
©2012 International Monetary Fund
FRANCE
STAFF REPORT FOR THE 2013 ARTICLE IV CONSULTATION
July 12, 2013

KEY ISSUES
Context and Outlook: On the back of sizeable fiscal consolidation and low confidence,
the recovery stalled in 2012. Fiscal consolidation remains very substantial in 2013, and
output is projected to contract slightly this year and to grow moderately in 2014.
Structural rigidities in labor and product markets, and comparatively low profit shares,
have undermined the economy’s growth potential and contributed to loss of export
performance. On the positive side, credit conditions remain supportive, and private
demand is unencumbered by balance sheet repair issues and so is more apt to respond
favorably to an improvement in confidence.

Risks: The main risks lie in precarious growth prospects in Europe, a possible resurgence
of financial market stress, domestic policy uncertainty, notably in regard to future fiscal
policy choices, and a stalling of domestic structural reforms. A failure of growth to
recover would make it more difficult to reverse debt dynamics in the short run. Financial
stability risks have abated considerably since the last report, as banks have completed
their deleveraging objectives and strengthened their capital and liquidity buffers. Low
bank profitability remains a risk factor.

Policy Recommendations: With much of the required fiscal consolidation expected to
be completed by 2013, the pace of adjustment should be eased in 2014 relative to
current plans in order to support the recovery. Adjustment should also be rebalanced
toward expenditure containment, with a view to improving the quality of adjustment and
removing policy uncertainty that weighs on private spending decisions. Credible
expenditure containment should be backed by structural fiscal measures: some savings
have been identified and the upcoming pension reform will be a key element of the
strategy, but there is scope to rationalize public spending on a larger scale. The
authorities have given structural reforms an important forward momentum with
measures to improve competitiveness (notably a reduction of the labor tax wedge), a
broad reform to move the labor market toward greater “flexicurity”, planned
improvements in worker training mechanisms and regulatory simplification. The reform
momentum will need to be powered up, by deepening labor market reforms and
opening product markets to greater competition (notably in services) as an important
lever of productivity growth and employment creation. Financial sector policies should
aim at consolidating the significant progress achieved in strengthening financial stability
and preserving the capacity of banks to provide credit as they adapt to new prudential
requirements, notably by better aligning tax incentives on financial products to
regulatory objectives.

FRANCE
Discussions took place in Paris from May 21 to June 3, 2013. The staff Approved By
team comprised Messrs. Gardner (head), Hallaert, Ms. Pérez-Ruiz, and Mahmood Pradhan
Ms. Poirson (all EUR). The team was supported from headquarters by and Vikram Haksar
Ms. Susan Becker and Ms. Kelly MacKinnon (both EUR). France
Executive Director Mr. de Villeroché and Mr. Cumenge (OED)
participated in the discussions. Staff met with Ministers Moscovici
(Finance and Economy), Cazeneuve (Budget), Bank of France Governor
Noyer, other senior officials, and financial sector, academic,
parliament, employers and trade union representatives. The mission
held a press conference at the conclusion of the mission.

CONTENTS

RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK ________________________________________ 4 
A. A Hesitant Recovery _____________________________________________________________________________4 
B. Outlook, Risks and Spillovers __________________________________________________________________ 14 
POLICY DISCUSSIONS __________________________________________________________________________ 21 
A. Scope for Easing Fiscal Adjustment, but Refocused on Expenditure Containment ____________ 21 
B. A Multi-Pronged Structural Reform Strategy to Revive Growth _______________________________ 27 
C. Reduced Risks to Financial Stability but a Financial System Under Transformation ___________ 34 
STAFF APPRAISAL ______________________________________________________________________________ 38 

BOXES
1. Moving to Structural Fiscal Targets: Framework and Challenges ______________________________ 23 
2. Labor Market Reform on a Forward Momentum ______________________________________________ 29 

FIGURES
1. Demand Components: Crisis and Rebound ______________________________________________________6 
2. Inflation Developments __________________________________________________________________________7 
3. External Developments in Euro Area Comparison _______________________________________________9 
4. Financial Sector Developments ________________________________________________________________ 12 
5. Bank Lending to the Non-Financial Private Sector _____________________________________________ 13 
6. Short-Term Frequency Indicators, and Savings’ Countercyclical Role __________________________ 15 
7. Housing Market Developments ________________________________________________________________ 19 
8. Medium-Term Fiscal Adjustment, 2012–17 ____________________________________________________ 24 
9. Labor Cost Reducing Measures ________________________________________________________________ 32 
10. Household Financial Savings _________________________________________________________________ 35 

2 INTERNATIONAL MONETARY FUND FRANCE

TABLES
 1. Selected Economic and Social Indicators, 2010–18 ____________________________________________ 41
2. Balance of Payments, 2011–18 _________________________________________________________________ 42 
3a. General Government Statement of Operations, 2008–18 _____________________________________ 43 
3b. General Government Integrated Balance Sheet, 2003–11 ____________________________________ 44 
4. Vulnerability Indicators, 2006–12 ______________________________________________________________ 45 
5. Daily Movements of Selected Financial Indicators _____________________________________________ 46 
6. The Core Set of Financial Soundness Indicators, 2005–12 _____________________________________ 46 
7. Encouraged Financial Soundness Indicators, 2005–12 _________________________________________ 47 

APPENDICES
 I. Main Recommendations of the 2012 Article IV Consultation and Authorities’ Response ______ 48
II. Overview of Main Structural Reforms __________________________________________________________ 49 
III. FSAP Update: Status of Main Recommendations _____________________________________________ 56 
IV. Debt Sustainability Analysis ___________________________________________________________________ 59 

APPENDIX TABLE
 1. Public Sector Debt Sustainability, 2008–18 ____________________________________________________ 63


INTERNATIONAL MONETARY FUND 3
FRANCE
RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK
A. A Hesitant Recovery
Real GDP1. Following an initial recovery in 2010–11,