IMF Report Predicts Modest Recovery but Worsening Unemployment

The spotlight is on President François Hollande as he attempts to pull the French economy out of a deep recession.

The spotlight is on President François Hollande as he attempts to pull the French economy out of a deep recession. Photo: François Hollande for flickr.

In an official report on Tuesday, the International Monetary Fund (IMF) forecast a modest return to growth for France in 2014 while warning that unemployment would continue to rise, and advised the French government to ease its deficit reduction measures.

In its review of the French economy—the Eurozone’s second largest after Germany, with a GDP (PPP) of over €2.2 trillion—the IMF maintained its prediction that output in France will contract by 0.1% this year, despite some slivers of hope that the worst of France’s recent woes were over.

As a silver lining, the IMF’s latest warning is an improvement over its June forecast, in which it predicted a contraction of of 0.2%.

It also warned that unemployment in France—currently at more than 10%—would continue to rise through the second half of the year. In June, France logged a record high 3.28 million jobless claims. It forecast a return to growth of 0.8% for 2014.

According to the report, France will be two-thirds of the way to deficit stability by the end of this year, and “should ease the pace of adjustment.” Specifically, the report advised the government to cut spending instead of hiking taxes.

France already has some of the highest tax rates in the world, and the report warned that raising them any further would severely impede France’s ability to compete with its European neighbors.

The report said that France’s current performance confirms earlier predictions that the French deficit will drop to 3.9% of gross domestic product, down from 4.8% last year.

Currently, the government hopes to support two-thirds of its deficit reduction plan with spending cuts and the other one-third with higher revenues. The IMF has advised France to pursue only the spending cuts part of the plan.

The IMF advised the Hollande administration to ease unemployment by further cutting payroll taxes, giving employers more leeway in setting wages and managing human resources, and putting a greater focus on job training.

The report conceded that the Hollande administration had taken some steps to reduce unemployment, but criticized “the slow pace of [those] reforms,” and said that the failure to take more decisive measures had “undermined the economy’s potential to grow.”

In a formal letter of response, French IMF attaché Herve de Villeroche rejected calls to freeze the minimum wage, and said that the IMF’s analysis had failed to account for recent EU job creation programs.

De Villeroche also pointed out that France had taken steps to make its social security systems more financially efficient.

President François Hollande is betting on state-subsidized jobs and vocational training to put a cap on unemployment by the year’s end. He has publicly stated that fighting unemployment is his top priority, telling the French people, “I will be judged on it” last month.

As one way to spur job growth, the administration has hired more than 30,000 new classroom minders and playground supervisors for French schools when class resumes in September. Many of these new employees were plucked directly from breadlines.

Although Hollande insists that the economy is on its way up again after two quarters of shrinkage, he has acknowledged that there will not be enough growth to create new jobs until the end of 2013.

The IMF is decidedly more bearish on job growth. It expects unemployment to hit 11.2% by year’s end, up from 10.2% in 2012.

Further, it has warned that unemployment will keep rising to 11.6% in 2014, before dropping to 11.4% in 2015.

Comments

  1. Lawrence Walsh says:

    if you want a small critique about this, I am ready to give you one.

Trackbacks

  1. […] an official report, the International Monetary Fund (IMF) forecast a modest return to growth for France in 2014, and advised the French government to ease its deficit reduction measures. It also warned that […]

  2. […] recent recession. Although economists officially declared the recession over earlier this month, unemployment is still high, and consumer spending remains […]

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