IMF tells France to speed up reforms and rein in spending after growth outlook cut
Day after slashing Germany's forecasts, fund tells French government unemployment will keep rising
France must lower labour costs, open up regulated professions, deepen its labour and business reforms and stop tax hikes to get back to growth and bolster competitiveness, the IMF warned yesterday.
A day after slashing its growth forecast for Germany, the IMF said that France was set to contract slightly more than its current forecast and that unemployment would keep rising in spite of the government's promise to reverse the jobless trend by year-end.
"The number of reforms initiated in the last six months speak well of the government's understanding that France needs to be reformed," the IMF's mission chief for France, Edward Gardner, said, adding: "It's a first step in a long process".
The IMF urged France to remove constraints on housing construction and push for more negotiations at enterprise level. It also suggested giving the competition authority more power to review all sectors of the economy.
With rising youth unemployment a growing concern throughout Europe, the IMF said more instruments should be found to lower the effective cost of hiring young workers.
Mr Gardner said that could include a lower minimum wage or more flexible contracts, an idea that has been fiercely opposed by young people and unions in the past.
Regarding structural reforms, the IMF stressed that France's focus should be on reining in public spending.
"Following three years of substantial fiscal adjustment, there is scope to moderate the pace of consolidation going forward, provided the effort is concentrated on expenditure and backed by continued structural reforms," it said.
The IMF's report said the French economy would start turning around in the second half of 2013. On Monday, the fund halved its 2013 forecast for Germany based on uncertainty in other eurozone economies, including France.
It cut its forecast for France to a contraction of 0.2pc this year from a previous forecast of 0.1pc and predicted growth of 0.8pc next year, down from a previous estimate of 0.9pc.
But Mr Gardner warned that one of the main downside risks for France was the lack of household and business confidence, adding that uncertainty over taxes was weighing on that.
"There is no more scope for increasing the tax burden, not only because it has reached very high levels which are distorting incentives and in the end undermining growth," he said. "But also the perception that taxes are the instrument of adjustment . . . is creating a lot of uncertainty . . . undermining consumer confidence and enterprise investment capacity."
The IMF said risks to financial stability had abated considerably as banks had repaired their balance sheets, but it noted banks still had some way to go in increasing their liquidity buffers and improving net stable funding ratios.
"This requires a move toward more market-intermediated credit and higher deposit collection," it said.
France entered a shallow recession in the first quarter as weak exports, investment and household spending caused a 0.2pc contraction.