France should ease pace of austerity to grow: IMF

The International Monetary Fund (IMF) says if France wants to experience economic growth it should ease the pace of its austerity policies aimed at bringing the budget deficit under control.

“By the end of 2013, the government will have completed two-thirds of the effort … to bring deficits to a stable position. Given this track record and the still hesitant recovery, the government should ease the pace of adjustment,” the IMF said in its annual survey of the French economy released on Monday.

It also added that the country should reduce its spending more but it should not increase the taxes. The report said that taxes in the eurozone’s second-largest economy are already “among the highest by international standards” and raising them can impede investments and job creation.

The IMF also predicted that France would end the year in recession, saying, “Fiscal consolidation remains very substantial in 2013, and output is projected to contract slightly this year and to grow moderately in 2014.”

The report further touched on the high wages that are damaging French companies, warning that “In the face of a trend decline in total factor productivity growth since the 1990s, real wage growth in France has been sustained at the expense of the share of income going to profits.”

France is struggling to revive an economy that has barely grown in more than two years and tackle unemployment, which soared to a 14-year high of 10.8 percent in the first quarter of 2013.

Even though the government of President Francois Hollande has increased taxes and implemented several reforms and spending cuts in an attempt to lower the country’s huge debt load, the measures have proven unproductive since the financial crisis in the eurozone has not been resolved and the 17-member bloc is still bogged down in recession.

On July 12, global ratings agency Fitch cut France’s credit rating from AAA to AA+, citing concerns about its debt burden, high unemployment rate and weak economic outlook.