The French government’s deficit-reduction policies are hurting growth and it shouldn’t make further cuts even though it’s unlikely to hit 2013 European targets, the International Monetary Fund said.
In its annual review of France, the IMF last week forecast that the economy will grow 0.4 percent next year, half the government’s outlook, and as a result the Washington-based IMF sees France unable to meet a deficit target of 3 percent of gross domestic product next year. The IMF expects a shortfall of 3.5 percent and says the difference isn’t important.
“Whether it’s 3 percent or 3.5 percent matters less than whether the government can give credible assurances about the direction of policy,” Edward Gardner, the IMF’s mission chief for France, said in a conference call today. “Our preferred policy is not to take any additional measures at this stage. The path to a balanced budget over the medium term is credible.”
Any budget cuts after next year should come from reduced spending because “there is limited scope for further increases in taxes without harming business incentives,” Gardner said.
The IMF also called on France to reduce the cost of labor and ease labor regulations to regain lost competitiveness vis-a-vis its trading partners.