PARIS (AP) — France's rigid labor market, high taxes and inefficient public spending are dragging down its economy, the International Monetary Fund warned Monday in a report calling on the government to accelerate economic reforms.
In its annual assessment of France's economy, the IMF said the country has made considerable progress in cutting spending, confirming its prediction that the deficit will drop to 3.9 percent of the country's gross domestic product in 2013, down from 4.8 percent in 2012. The organization added it expected the economy to begin growing again in the second half of 2013, reflecting Europe's increasing economic strength as well as reforms under France's Socialist government.
But the report nonetheless called on France to push on with much-needed relaxation of its labor markets. France's rigid employment contracts make firing expensive and complex and many companies have become reluctant to hire. Unemployment stands at 11 percent, according to Eurostat's latest figures from June, up slightly from May's 10.9 percent.
The IMF also said high unemployment coupled with rising taxes were sapping France's ability to compete with its European neighbors and is eroding disposable income. Rather than raising taxes further — France's taxes are already some of the highest in the world — the report called for streamlining public spending in social security and at the local level. A recent survey by the Organization for Economic Cooperation and Development recorded that income tax and other compulsory contributions, such as pension payments, made up 50 percent of overall labor costs compared with almost 40 percent in the United States.
Monday's report said France's economy flatlined in 2012 and predicted "a gradual recovery in the second half of 2013." The French government has echoed the report's optimism. "2014 should be the first year of real growth in three years," Economy Minister Pierre Moscovici said last week.
And Herve de Villeroche, France's representative to the IMF, said the government was going as quickly as possible on labor reforms, but was focused on making sure negotiations were inclusive. "Consulting stakeholders, notably social partners, might entail a longer process, but it ensures full ownership," he said in a written response to the IMF report.
Two major reforms in recent months included a tax credit that reduces payroll taxes for companies on the lowest salaries and a labor law that will reduce the cost of firing and simplify legal challenges to layoffs.
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