TODAYonline: IMF: France 'within reach' of meeting EU budget goal

TODAYonline

IMF: France 'within reach' of meeting EU budget goal

France is finally in sight of getting its finances in line with eurozone rules but needs to step up reforms to accelerate growth and cut unemployment, the International Monetary Fund said. In an annual review of the 12-nation eurozone's second-biggest economy, the IMF welcomed labour market reforms already launched by the French government in a bid to reduce stubbornly high jobless levels. It predicted French gross domestic product (GDP) would expand by 1.5 percent in 2005, at the bottom end of the government's 1.5 - 2.0 percent target range, and by 1.8 percent next year. More broadly, the IMF urged France to show the "flexibility necessary" to bring about a successful round of World Trade Organisation talks, particularly in agriculture, where France is blocking further reform at the European Union. The IMF said the French government had trimmed its budget to try to get its public deficit down to an EU limit of 3.0 percent of GDP for the first time since 2001.
"Directors welcomed the continuing fiscal consolidation in 2005, whereby the objective of reducing the deficit to 3.0 percent of GDP was now within reach despite slow growth," the report said. The IMF forecast the French deficit to stand at 3.1 percent of GDP this year. But it said that without policy changes, the deficit would then expand to 3.3 percent in each of 2006 and 2007, before falling to 2.8 percent in 2008. The IMF said France needs to consolidate reforms and take bolder action in the future. "To raise the growth potential further and achieve fiscal sustainability, directors urged the authorities to sustain the recent pace of fiscal consolidation in 2006 and beyond and to build further structural reform momentum, especially by broadening recent labour market initiatives," it said. The French government's 2006 draft budget targets a reduction in the deficit to 2.9 percent of GDP. The IMF said the French economy faltered this year as consumer spending hit an "unexpected" fall possibly due to stagnant unemployment, high oil prices and political turmoil linked to voters' rejection of the EU constitution. A slowdown in exports has widened the French trade deficit and cut annual growth by fully one percentage point, the IMF report also said. High oil prices have pushed headline inflation above 2.0 percent, but underlying inflation has remained stable at a lower level, it said. The IMF, which like the European Commission has long championed economic reforms in the EU, said the key to higher growth in France was deeper reform of hidebound labour practices. The report welcomed a new contract pushed through by the government that makes it easier for small firms to hire and fire, and another contract that encourages older workers back into the workforce. More broadly, the IMF urged France to show the "flexibility necessary" to bring about a successful round of World Trade Organisation talks, particularly in agriculture, where France is blocking further reform at the European Union. The IMF said the French government had trimmed its budget to try to get its public deficit down to an EU limit of 3.0 percent of GDP for the first time since 2001. Directors welcomed the continuing fiscal consolidation in 2005, whereby the objective of reducing the deficit to 3.0 percent of GDP was now within reach despite slow growth," the report said. The IMF forecast the French deficit to stand at 3.1 percent of GDP this year. But it said that without policy changes, the deficit would then expand to 3.3 percent in each of 2006 and 2007, before falling to 2.8 percent in 2008.
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