The International Monetary Fund has lowered its growth projections for France, saying the economy is likely to contract by 0.2 percent this year. Its previous forecast was a 0.1 percent decline.
For 2014 it expects growth of 0.8 percent, slightly below the previous prediction of 0.9 percent growth.
An IMF mission also delivered a blunt message to the Paris government – step up reforms and contain public spending if you want to turn France around and make it competitive again:
Mission chief Edward Gardner said: “We also see deep structural issues affecting growth potential in France due to loss of competitiveness as witnessed in losing market shares faster than some of its European partners and rigidities in labour and product markets.”
On the plus side, the IMF said the eurozone’s second-largest economy should start turning around in the second half of this year.
It also noted that French companies and households are not overburdened by debt.
That means that they have the capacity to start consuming and spending under more favourable conditions which is not the case in some other European countries.
Be more competitive
The Fund stressed that France must increase competition in product and services markets to improve its competitiveness, while focusing budgetary efforts on containing expenditure.
“A powering up of the reforms launched by the government in the last six months is needed to close this gap,” it said in the report after one of its regular missions.
“Other instruments should be found to lower the effective cost of hiring young workers, if not through the wage through an easing of contractual work arrangements.”
Gardner praised recent reforms including a tax credit that reduces payroll taxes for companies on the lowest salaries and a labour law designed to reduce the cost of firing and simplify legal challenges to layoffs.
But he added: “We also consider them to be really initial steps of a process that needs to be deepened and broadened.”
The report added that France needs to continue to cut its deficit but that it should focus on cutting spending. So far, the government has mostly relied on tax increases to address the budget deficit.