Strikes, protests notwithstanding, IMF prods France to reform

[May 24, 2016]  By Leigh Thomas

PARIS (Reuters) - France's economy is not recovering quickly enough to cut unemployment and debt significantly, and will not do so without further reforms, the International Monetary Fund said on Tuesday despite slightly raising its growth estimates.

The IMF's warning came as President Francois Hollande's government faced a standoff with unions carrying out refinery, port and rail strikes over a contested labor reform to make hiring and firing easier.

The French economy is set to grow close to 1.5 percent this year and 1.75 percent on average in the coming five years, the IMF said in the preliminary findings of an annual review of France. Previously, the institution had forecast 1.1 percent growth this year and 1.3 percent next year.

The more optimistic outlook lends some credence to the government's own forecasts for growth of 1.5 percent this year and next, which many economists say is the bare minimum necessary to get unemployment falling.

Less than a year away from a presidential election in which Hollande has yet to say whether he will run, the Socialist government is banking on its reform of France's highly codified labor market to being down joblessness, currently stuck at around 10 percent.

But job creation will nonetheless lag unless the government does even more to reform the labor market than now planned, the IMF said.

It recommended in particular tightening rules for receiving unemployment benefits, a move which would likely be a red flag for unions.

DEBT

Turning to government finances, the IMF said a recent improvement came from recovering growth and falling interest rates rather than reduced spending.

Without a greater effort, France's reduction in the public deficit will be just barely in line with its target of three percent of economic output next year, the IMF said.

It estimated debt would peak at 98 percent of gross domestic product in 2017.

It also recommended streamlining France's vast civil service and keeping wage growth in check after the government agreed to a two-step salary increase early this year following a six-year freeze.

Meanwhile, social spending would be a ripe source of savings, it said, especially if benefits were increasingly handed out based on need.

Further savings could be found by raising the retirement age and reining in health spending.

(Editing by Andrew Callus/Jeremy Gaunt)

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