OECD Economic Surveys: France 2007

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With short-term prospects somewhat brighter, and budgetary prospects improved, the OECD Economic Survey of France 2007 looks at some long-term challenges: the performance of policies for education and those for poverty and social exclusion is satisfactory or better in many areas, but cost-effectiveness can be improved and more focus on employment is needed. Policy has begun to prepare for the economic impact of population ageing, but there is no room to relax in seeking to contain fiscal costs and to increase employment among older workers.

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The key challenges facing the French economy

Output has been growing at near-potential rates since late 2005, accompanied by an acceleration in employment growth and falling unemployment. The general government budget deficit shrank quite significantly in 2006, even though economic growth was only moderate. The recovery remains rather hesitant, and the slight but persistent growth advantage that France has had over important trading partners such as Germany and Italy for more than a decade seems to have vanished or reversed. Relieving prevalent pessimism and improving the foundations for economic growth would be helped by dealing adequately with poverty and social exclusion, in large part through improved labour-market performance, and by operating an education system that is seen to promote equality of opportunity and prepare young people for the labour market; two chapters of this Survey deal with these issues. Despite the recent improvement in public finances, there remains the longer-term challenge of the demands that demographic ageing will bring, to which a further chapter is devoted. Another challenge for public finance is to organise the decentralisation of government functions to the appropriate level of local government, while maintaining incentives for cost-efficiency, an issue taken up in a chapter on fiscal federalism.

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