Further reforms in France can drive growth, improve public finances and boost social cohesion

Mr Emmanuel MACRON, President of France. Copyright: European Union Event: European Council – March 2019 (Day 1)

This article is brought to you in association with OECD.

The French economy has slowed, with weaker growth and employment prospects weighing on living standards and well-being. Policy should focus on long-term strategies to revitalise growth, improve public finances, create more and better jobs and ensure a more inclusive and cohesive society, according to a new report from the OECD.

The latest OECD Economic Survey of France looks at the factors behind the country’s economic performance, as well as policies that can boost productivity and competitiveness, which will be key to improving future living standards. The Survey projects growth of 1.3% this year and next, which will be insufficient to bring about a rapid decline in unemployment and a significant improvement in public finances without further reforms.

The Survey, presented in Paris by OECD Secretary-General Angel Gurría and French Minister of Economy and Finance Bruno Le Maire, encourages the government to move forward with both ongoing reforms and those proposed by the OECD, which combined could increase GDP per capita by 5% at a ten-year horizon. The reforms are designed to boost income for households in the lower half of the income distribution, making growth more inclusive.

The Survey also draws attention to a wide range of downside risks, principally linked to the global slowdown, as well as ongoing social unrest in France. It recommends that France prioritise the redistributive effects of future economic reforms. This could require additional efforts to ensure greater social acceptability and better implementation of policies. In this context, the Survey looks at additional measures that could complement the ongoing reform agenda and ensure more sustainable and inclusive growth.

“There is a real need to address the social challenges of long-term unemployment, difficulty in joining the labour market and weak social mobility,” Mr Gurría said. “The government has undertaken courageous reforms to boost economic activity, increase the disposable income of low-wage earners and put public finance on a firmer footing. France should capitalise on this reform agenda and take further measures to improve public spending efficiency, increase high-quality jobs and ensure that the economy of the future works for everyone.”

The Survey underlines the need to strengthen skills and greater inclusion of low‑skilled workers in the labour force. This would require increasing the quality of education, reforms to ensure that high-quality training programmes benefit everyone and measures to reduce the use of short-term contracts.

Improving the quality of public spending would improve the fiscal position and create space for lower tax rates in the long run, particularly on labour. Precise targets for controlling public expenditure are needed, alongside increased focus on ensuring that investment and social spending are well targeted to contribute to stronger and greener growth, the Survey said.

Continuing to increase environmental taxation while supporting the most affected populations would also ease the transition towards a greener economy. Moreover, reform of the pension system is needed.

Continuing to reduce administrative barriers to entry and unduly restrictive regulations would raise competitive pressures and ensure favourable conditions for young and dynamic firms, boosting productivity gains and innovation.