World Economy

IMF Says France’s Growth on Track

IMF Says France’s Growth on TrackIMF Says France’s Growth on Track

France has a “unique window of opportunity” as growth picks up to tackle its weak public finances and high unemployment while reversing its decline in competitiveness, the International Monetary Fund said on Monday.

The IMF said after its annual country review the new French government’s plans to focus on cutting spending was “appropriate” and also deemed its push to make its employment laws more flexible as “broad and ambitious”, Reuters reported.

Meanwhile, President Emmanuel Macron’s plans to gradually cut corporate tax to 25% from 33.3% while setting a flat 30% tax on capital income would make France more competitive while boosting investment, IMF staff wrote in the conclusion of their review, known as an Article IV mission.

“With a strong political mandate and economic conditions improving—growth is on track to reach 1.5% this year and further accelerate next year—there is now a unique window of opportunity for such a bold and comprehensive economic reform package,” the IMF said in a statement.

The IMF had previously expected the economy would grow 1.4% this year and 1.6% next year. The French government is targeting growth this year of 1.6% and 1.7% in 2018.

“The envisaged labor and tax reforms are aimed at boosting growth, employment, and competitiveness,” it added.

It also said the centrist government under 39-year-old former banker Macron “has rightly emphasized” the need to decrease public spending. The IMF said such a move “would help gradually reduce the budget deficit and debt.”

The government has pledged to meet the EU deficit limit of 3% of GDP in 2017, a target France has missed for the past decade.

The government said last week it had identified €4.5 billion ($5.1 billion) in savings in order to meet the goal.

Macron, a former investment banker who later served as economy minister, was elected as France’s youngest president ever in May running on a largely pro-business platform and promises to reform the economy. A month later he won a commanding majority in parliamentary elections to help carry out his agenda.

However, an official audit in July found the public finances running billions over budget.

That left the government scrambling to come up with savings necessary to cut the public deficit to 3% of economic output and meet an EU cap for the first time in a decade.

The IMF said that would not only require major, across-the-board spending freezes this year but a further “exceptional effort by historical standards” again next year to hit the government’s deficit target of 2.7%.

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