Reforms could add 3.7% to French growth over 10 years: OECD

17th October 2014, Comments 0 comments

The moribund French economy could get a sharp boost each year over a decade if highly controversial reforms to help businesses are enacted, estimates from the OECD showed on Friday.

Such changes could add 0.4 percent to economic output every year over the next 10 years, it said, with the total benefit amounting to 3.7 percent of gross domestic product.

In the next five years, as the measures take effect, the benefit could equate to 0.3 percent of output each year, the Organisation for Economic Co-operation and Development said.

The calculations by the Paris-based body, a policy forum for 34 advanced democracies including France, point to a significant extra benefit since the economy is set to grow by only 0.4 percent this year.

"To put the French on the path to stronger growth, but also more inclusive, requires the reinforcement of structural reforms started in 2012," OECD Secretary General Angel Gurria said in a statement with the report, which was to be given to President Francois Hollande later on Friday.

France's economic growth has sunk into the doldrums this year, held back by near record unemployment and the government's huge pile of debt, which has put it on a collision course with the European Union.

The reforms are strongly opposed on the left of the governing Socialist party. Hollande is counting on the measures to turn the economy round.

Finance Minister Michel Sapin forecast at the beginning of the month that the French economy would grow by only 0.4 percent this year, recovering to 1.0 percent in 2015, 1.7 percent in 2016 and 1.9 percent in 2017.

Paris also predicts its budget deficit -- the shortfall between revenue and spending -- will hit 4.3 percent of annual economic output next year and only fall to the EU's debt ceiling of 3.0 percent in 2017, instead of next year as it had previously promised.

That has put it at loggerheads with the European Commission, the EU's executive arm, which many expect could demand that Paris modify its 2015 budget to bring it in line with rules governing the 18-country eurozone.

Analysts say that a compromise is likely to require France to introduce big reforms of its labour laws.

To turn around its economic fortunes, France must swiftly implement Hollande's "Responsibility Pact" which would strip 50 billion euros ($64 billion) from public spending, and hand out 40 billion euros of corporate tax breaks with the aim of creating 500,000 jobs, the OECD said.

"In the future, these structural reforms will not only be implemented fully but also expanded, particularly to further reduce the dual labour market, rebalance funding of the pension system and rationalise public spending," it added.

© 2014 AFP

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