The French government should strengthen its economic reforms to keep pace with the country's European peers and narrow the competitiveness gap between France and its trading partners, the International Monetary Fund said in a report on Tuesday.
The Washington-based lender also lowered the growth outlook for the economy and said there is scope to moderate the pace of fiscal consolidation going forward, provided the effort is concentrated on expenditure and backed by continued structural reforms.
"The gap relative to European trading partners in terms of cost and non-cost competitiveness remains a dampening factor and ultimately a risk for macroeconomic balances," the report said. IMF said that France need to power up the reforms launched by the government in the last six months to close this gap.
The IMF forecasts real gross domestic product to contract 0.2 percent in 2013 and grow 0.8 percent in 2014, with downside risks weighing on the outlook. The Fund had earlier projected 0.1 percent contraction this year and 0.9 percent growth in 2014.
The lender was of the view that a steady decline in the household saving rate should help minimize the projected contraction in private consumption despite a fall in disposable income.
The main downside risks lie in the precarious growth prospects in Europe and the uncertainty on tax policy in France which are weighing on spending decisions of households and enterprises, according to the report.
According to IMF, restoring external competitiveness remained "a critical priority" for the country and should be complemented by developing domestic sources of growth.
The report noted that the growth strategy should rest on thee pillars; raising the economy's capacity to create value and generate productivity gains, building on the momentum of the labor market reform and strengthening activation policies as well as improving the efficiency of social transfers.
The economy slipped in to recession in the first quarter of 2013 with unemployment hitting a new record high in April. The IMF expects the economy to begin to recover in the second half of 2013, supported by favorable external developments.
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