France faces a deeper than expected recession this year and must overcome “critical obstacles” to improve competitiveness, the International Monetary Fund warned today.
It expects the eurozone’s second biggest economy to shrink by 0.2% this year — worse than its previous estimate of a 0.1% decline — before recovering to grow by 0.8% next year.
But the fund heaped more pressure on hugely unpopular president Francois Hollande to implement reforms, and warned long-standing problems such as falling productivity would bite harder as European neighbours make moves to boost their own competitiveness. The IMF said France should focus on cutting spending to slash its deficit rather than tax rises, such as the proposed 75% rate on earnings over €1 million which drove actor Gerard Depardieu to take Russian citizenship.
It added: “The cost of labour remains a critical obstacle to employment at the lower skill end of the labour market. This affects a large part of the population particularly among the youth.”
The country’s banks have continued to repair their balance sheets and overall risks to financial stability have abated considerably, the IMF said, but it added: “The French banks still have some way to go to increase their liquidity buffers and improve net stable funding ratios.”
