French Unemployment Crisis Could Last A Decade, Warns IMF
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France needs to accelerate labour market reforms and avoid new taxes to sustain a tentative return to growth, the International Monetary Fund said on Monday, while warning that unemployment would keep rising this year and next in the eurozone’s second-biggest economy.
In an annual health check of the French economy, the IMF said the country has made considerable progress in cutting spending, predicting that the deficit will drop to 3.9 percent of GDP in 2013, down from 4.8 percent in 2012.
France needs to accelerate labour market reforms and avoid new taxes to sustain a tentative return to growth, the International Monetary Fund said on Monday, while warning that unemployment would keep rising this year and next in the eurozone’s second-biggest economy.
In an annual health check of the French economy, the IMF said the country has made considerable progress in cutting spending, predicting that the deficit will drop to 3.9 percent of GDP in 2013, down from 4.8 percent in 2012.
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But the IMF recommended that France cut back on austerity measures in 2013, predicting a 0.2 percent contraction this year before a mild recovery of 0.8 percent in 2014. France has already laid out plans for some 14 billion euros of spending reductions and up to 6 billion euros in tax increases.
At the same time, the government needs to rebalance efforts and reduce spending rather than increase taxes, which are among the highest by international standards and adversely affect investment and job creation. “Rebalancing fiscal adjustment toward expenditure containment is critical,” the IMF said.
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The Washington-based lender also warned that France needed to accelerate reforms in its labour market as it is undermining the economy’s potential to grow.
France’s stagnant economy has thwarted most of President Francois Hollande’s economic plans, leaving him reliant on state-subsidised jobs to deliver on his key promise of curbing rising unemployment by the end of the year.
“I acknowledge that it is partly thanks to the employment policies we are accelerating and that it’s not yet job creation in the private sector, because that requires stronger economic growth,” said Finance Minister Pierre Moscovici in an interview last week.
The IMF predicts unemployment rising to 11.2 percent this year, peaking at 11.6 percent in 2014 before decreasing slightly to 11.4 percent in 2015.
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According to the French labour ministry, the main cause of unemployment remains the end of short-term contracts that have not been renewed by companies that are more and more reluctant to take on people as permanent hires. Current employment contracts in France are also outdated and rigid, making firing expensive and complex.
Overall, there are signs the French economy is recovering but a stronger and sustained boost to investment and job creation is needed to reduce unemployment, said the IMF.
