Confidence, Competitiveness Key to Boost Recovery in France

Reforms to improve key economic institutions, help investment, job creation

Slow the pace of deficit reduction, reduce spending rather than increase taxes

Resilient banks need to adapt to new financial regulations by securing stable funding sources

The International Monetary Fund’s latest annual check-up of the French economy predicts the economy will contract by 0.2 percent in 2013 and grow by 0.8 percent in 2014. Weak conditions in Europe, low confidence and sizeable efforts to reduce the government deficit over the past two years have dampened growth.

The slow pace of reforms to make the labor and product markets more competitive has also undermined the economy’s potential to grow, and decrease competitiveness in export markets.

Reforms to boost growth

The authorities have begun to address these challenges, and have given structural reforms an important forward momentum with measures to

• reduce the payroll taxes

• give enterprises greater flexibility to adjust wages and working hours while reinforcing job security

• improve job training and to simplify government regulations.

”Combined with these reforms, an opening of product markets to greater competition, notably in the more protected services sector, would be an important lever of productivity growth and employment creation for the economy,” said Edward Gardner, an assistant director in the IMF’s European Department and...