IMF Sees France Falling into Recession

The IMF forecast Tuesday that France, the eurozone's second-largest economy, will fall into recession this year with the economy contracting by 0.1 percent.

In its latest revisions, the International Monetary Fund dropped its previous forecast of 0.3 percent growth this year, but still expects the French economy to rebound by 0.9 percent in 2014.

France's growth is forecast to be negative in 2013, reflecting a combination of fiscal consolidation, poor export performance, and low confidence," the IMF's chief economist Olivier Blanchard said in the forward to its latest World Economic Outlook report.

The IMF's latest forecasts are more pessimistic than those the French government is to sign off on Wednesday as part of its plan to get its public deficit back under the EU limit of 3.0 percent of output by 2014.

In line with the European Commission, the French government is to officially forecast 0.1 percent growth this year and 1.2 percent in 2014.

The slow growth rates mean that France must make more of an adjustment in terms of increased taxes and/or social charges along with spending cuts to get the deficit down, which in turn could slow growth further.

The IMF's Blanchard noted that in conjunction with Germany posting growth of less than one percent this year, the recession in France "may call into question the ability of the (eurozone) core to help the periphery, if and when needed."

The Fund subsequently issued separate forecasts for the French public deficit and debt, estimating that France will only cut the deficit to below 3.0 percent of gross domestic product in 2015, when it is expected to come in at 2.6 percent. In 2014, the IMF expects the deficit to amount to 3.5 percent of GDP.

If true, that would push French debt up to a new record equivalent to 92.7 percent of GDP this year, to 94 percent in 2014 and to 94.1 percent in 2015. The theoretical EU limit for public debt is 60 percent of GDP.

A new French high council for public finances was also skeptical on Tuesday that the government's official forecasts would hold up.

It said in a statement that "a slight decline in GDP in 2013 and growth of markedly less than 1.2 percent in 2014 cannot be ruled out."

The body, which began functioning on March 21 in an advisory capacity, added that the government's scenarios for this year and next "is surrounded by a certain number of variables, which taken together raise the risk of downward revision to the forecasts."

Meanwhile, the IMF said it expects the French unemployment rate to continue rising steadily, from 10.2 percent in 2012, to 11.2 percent this year and 11.6 percent in 2014.