IMF concludes article IV consultation with France

Job growth has picked up and the unemployment rate has declined to around 9 percent. Inflation is expected to reach 1.8 percent this year, spurred by energy prices and a gradual increase in core inflation.

The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with France. Near-term growth prospects remain favorable, although less buoyant than in 2017. Real GDP growth is projected to reach 1.8 percent this year and 1.7 percent in 2019, supported by robust investment and solid consumption. While the contribution of net exports turned slightly positive in 2017 and the current account deficit shrunk, France's external position is assessed to be moderately weaker than implied by economic fundamentals and desirable policy settings.

Job growth has picked up and the unemployment rate has declined to around 9 percent. Inflation is expected to reach 1.8 percent this year, spurred by energy prices and a gradual increase in core inflation. The fiscal deficit fell to 2.6 percent in 2017, below the EDP limit of 3 percent for the first time in a decade, largely driven by the improved macroeconomic outcomes.

The government has initiated an ambitious reform strategy aimed at addressing France's structural challenges and bolstering the economy's resilience. Key labor market and tax reforms have been enacted, which should help enhance labor market flexibility and better align labor costs with productivity. Upcoming structural reforms focus on revamping France's vocational training and professional development and improving the business environment, which should help bolster the employment prospects of low-skilled workers and further support competitiveness. As to fiscal policy, the government aims to reduce the fiscal deficit and debt in the medium term by reforming public spending. On the financial sector front, the authorities have activated macroprudential policies to prevent the buildup of imbalances.

The medium-term outlook is predicated on the full implementation of ongoing reforms. Output growth is projected to gradually converge towards its long-run potential of around 1½ percent, supported by labor and product market reforms that help boost labor force participation and productivity. Spending reforms are expected to rebuild room for fiscal maneuver, while the preemptive use of macroprudential policies will further strengthen the resilience of the financial sector and its ability to support long-run growth.