PARIS (Reuters) - France should slow the pace of budgetary adjustment next year to protect a tentative return to growth, the IMF said on Monday, while warning that unemployment would keep rising this year and next in the euro zone’s second-biggest economy.
In a regular review of the 2-trillion-euro economy, the International Monetary Fund maintained its forecast for a 0.2 percent contraction of output this year despite signs that France is gradually returning to growth in the second half.
It forecast 0.8 percent growth for 2014.
“The pace of adjustment should be eased in 2014 relative to current plans in order to support the recovery. Adjustment should also be rebalanced toward expenditure containment,” the Fund said in its report.
While the government plans that two-thirds of the efforts to cut the deficit next year will come from spending cuts and one third from additional revenues, the IMF recommends to keep only the spending cuts part of the plan.
President Francois Hollande is banking on a turnaround in unemployment by year-end thanks to state-subsidised jobs, but the IMF is less optimistic and sees unemployment rising to 11.2 percent this year from 10.2 percent in 2012.
Unemployment would peak at 11.6 percent in 2014 before slightly decreasing to 11.4 percent in 2015, the IMF said.
“There are signs the French economy is recovering but a stronger and sustained boost to investment and job creation is needed to reduce unemployment,” the Fund added.
The IMF also called France to do more to rein in local authorities’ spending and carry out a deeper reform of social spending.
While the government plans for France to return to a structural budget surplus in 2016, the IMF considers it will take the country one more year to return to balance.
Reporting by Ingrid Melander