France slammed by IMF for record-high spending

The International Monetary Fund (IMF) has warned France that it must reduce government spending and debt levels, as well as tackling its sticky unemployment rate.

The IMF said in its latest economic outlook on France, published on Tuesday, that although it sees a “solid short-term recovery (in France), structural rigidities continue to weigh on medium-term prospects.”

“Continued efforts are needed to tackle France’s fundamental economic problems: high structural unemployment, low potential growth, and record-high public spending,” the group added.

Indeed, the IMF noted that high and rising government spending has been “at the heart” of France’s fiscal problems for decades.

The warning comes at a turbulent time for the euro zone, with growing concerns about Greece and the possibility of a sovereign default, which would affect the region more broadly.

Like Greece, France’s economy was hit hard by the financial crisis in the region, and it has since struggled to convince investors that an economic recovery is entrenched.

And despite posting surprisingly strong growth data for the first quarter of 2015 – when the economy expanded by 0.6 percent – unemployment in the country remains of serious concern.

French President, Francois Hollande, has consistently promised to lower the unemployment rate, which was at 10.6 percent in March, according to Eurostat. Indeed, it is such a hot issue that Hollande has said he will not run for re-election in 2017 if he fails to create more jobs.

But the IMF said that without further structural reforms, the unemployment rate in France was “likely to decline only very slowly.”

It added that the country’s growth potential “still appears much weaker than before the crisis,” and said that the current expansion was being supported by the accommodative external environment – such as lower oil prices, a weaker euro and low interest rates – rather than the domestic one.

“Investment has not yet responded, unemployment remains stubbornly high, and public debt continues to rise,” the IMF said. “Moreover, the positive external impulses may dissipate soon while structural rigidities continue to weigh on France’s growth potential.”


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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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