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IMF downgrades forecast for struggling French economy
Economics

IMF downgrades forecast for struggling French economy

04.06.2013 From our online archive
The International Monetary Fund on Tuesday downgraded its forecast for the French economy in 2013 and 2014, in more bad news for a country struggling to jumpstart growth and create badly-needed jobs.

(AFP) The International Monetary Fund on Tuesday downgraded its forecast for the French economy in 2013 and 2014, in more bad news for a country struggling to jumpstart growth and create badly-needed jobs.

The eurozone's second largest economy fell into recession in the first quarter of the year and registered a record number of jobseekers in April, the 24th consecutive month of rising unemployment.

French President François Hollande has vowed to boost growth and curb the rising unemployment trend by the end of 2013, but as it published its annual evaluation report on France Tuesday, the IMF warned this would be hard.

According to the Washington-based organisation, France's GDP will contract by 0.2 percent this year and grow by 0.8 percent in 2014, compared to previous predictions of a 0.1 percent contraction in 2013 and 0.9 percent growth next year.

"Following two quarters of negative growth (last quarter of 2012 and first quarter of 2013), economic activity should begin to recover in the second half of 2013, driven by a gradual improvement in the external environment," it said.

But it warned there were still downside risks in the form of precarious growth prospects in Europe, and uncertainty in France on tax policy, "which weighs on spending decisions of households and enterprises." It also said "significant rigidities hinder the economy's capacity to grow and to create jobs."

Financial situation of households and firms relatively sound

Edward Gardner, the IMF's mission chief for France, told reporters that "macroeconomic variables lead us to think unemployment will continue to rise and that it will be hard to reverse this rise by the end of the year."

Faced with a decline in productivity, companies have maintained real wage growth at the expense of profit margins, according to the IMF, "which in turn has undermined the capacity of enterprises to innovate and remain competitive in international markets."

It said restoring external competitiveness remained a "critical priority."

Striking a positive note, however, the IMF pointed out that the financial situation of households and firms remained relatively sound and could "more easily translate into an increase in demand."

"The French economy can also rely on a high household saving rate, first rate global enterprises, positive demographics, a strong scientific research capacity, and high quality public infrastructure," the report added.