The International Monetary Fund(IMF) has downgraded its forecast for the French economy in 2013, saying the country needs reforms to avoid falling even further behind other European countries.
In its regular assessment of France’s economy, published on Tuesday, the IMF predicted the country ' s economy to contract by 0.2 percent this year, down from previously expected drop of 0.1 percent. The report also said the country must apply reforms to its financial and labor market as decreasing productivity and profit margins are causing a growing gap between France’s competitiveness and that of its neighbors.
" We see deep structural issues affecting growth potential in France due to loss of competitiveness as witnessed in losing market shares faster than some of its European partners and rigidities in labor and product markets, " said Edward Gardner, the chief of the IMF ' s mission to France.
In addition, the IMF said France must focus on cutting spending and not relying on increasing taxes to fill budget holes as the country’s tax burden is extremely heavy. "There is no more scope for increasing the tax burden in France," said Gardner, noting that high taxes are undermining growth as well as creating uncertainty for consumers and companies, a condition which discourages them from spending and investing. Gardner went on to say that they did not expect the country's high unemployment rate, which stands at 11 percent, to fall before the end of 2013, as promised by President Francois Hollande’s government. On May 15, France’s national statistics agency revealed that the country had slipped back into recession after the economy shrank by 0.2 percent in the first quarter of 2013.