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Activity has been more or less stagnating since late 2011, and real GDP is projected to rise by only 0.3% in 2013, but then to expand by 1.3% in 2014. Joblessness and slack more generally will therefore continue to increase until late in the projection period, when the unemployment rate could reach 11¼ per cent. With weak growth, consumer price inflation is expected to fall gradually to below 1½ per cent per year.

France must seize the opportunity of the initial phase of a new government mandate to launch a comprehensive medium-term strategy of fiscal consolidation, spending cuts and structural reforms to boost confidence and raise competitiveness and growth. The government has shown welcome commitment to consolidate public finances. However, automatic stabilisers should be allowed to play fully if growth turns out to be weaker than assumed in the budget. In 2014 and beyond, public spending needs to be contained to allow the lower taxes required to restore firms’ competitiveness. Confidence would be spurred by implementing a wide range of growth-inducing reforms of the tax structure, education, and labour and product markets.