IMF urges ‘deep’ reforms to combat slidein French economy

WASHINGTON, Nov 3 (AFP) – A robust French economic recovery will slow in 2005 as oil prices dampen global activity and deep reforms are required now, the International Monetary Fund said Wednesday.

French gross domestic product (GDP) growth had shown a “strong upturn,” driven first by exports and then domestic demand, IMF staff said in a report after annual consultations with Paris.

“However, with higher oil prices and some softening of the external environment, the staff expects real GDP growth to slow from 2.5 percent in 2004 to 2.2 percent in 2005,” they said.

France officially forecasts steady growth of 2.5 percent in 2005.

The long-term outlook was constrained by the ageing population and structural weaknesses, a high tax and regulatory burden and a low degree of labour utilisation, the Fund staff said.

IMF executive directors, reviewing the staff report, welcomed France’s renewed effort to rein in the budget deficit, predicted by Paris to drop to2.9 percent of GDP in 2005 from 3.6 percent in 2004.

“Pension and health care reforms have improved the long-term fiscal outlook against the background of the impending demographic shock, while ongoing reforms in product markets are likely to boost growth,” the IMF bosses said.

“Directors urged the authorities to build on the strong performance by strengthening structural reforms and stepping up fiscal consolidation to secure higher long-term growth and fiscal sustainability.”

Cutting the unemployment rate would be a “key challenge,” the Fund directors said.

“With monetary conditions likely to remain quite accommodative from Frances perspective, stronger fiscal consolidation is unlikely to threaten the recovery,” they said in a statement.

“In this setting, directors urged the authorities to proceed decisively with fiscal adjustment,” the bosses added.

“They saw a need to strengthen adjustment in 2005 compared to current budget plans, given Frances weak underlying budgetary position and rising public debt.”

France’s recourse to a transfer of money from the electricity utility pension fund would be a one-off measure, it said, and not a durable fiscal adjustment.

“Directors considered that the alternative of genuine structural adjustment through reinforced expenditure restraint is feasible.”

A combination of spending restraint and growth-enhancing structural reforms was crucial to enabling a “much-needed” reduction in Frances high tax burden, the Fund said.

© AFP

Subject: French News