OECD Economic Surveys: France 2024

1. The economy has slowed and faces several challenges

Like other OECD economies, France has faced two significant, successive shocks: the COVID‑19 pandemic and the impact of inflation, particularly in the wake of Russia’s aggression against Ukraine. Government support measures have provided vital economic support, protecting businesses, jobs and household purchasing power.

Growth slowed in 2023 amid strong inflationary pressures and tighter financing conditions. It is expected to remain weak in 2024 but the economy should see a return to potential growth and improvement in household purchasing power in 2025. But beyond the cyclical recovery, low trend growth is holding back further improvements in incomes. GDP increased by only 1.5% per year between end-2009 and end-2019.

Several factors can account for this low growth performance, which predates the pandemic. These include insufficient levels and matching of skills, a slow diffusion of digital technologies within firms, high regulatory barriers and low R&D efficiency. The employment rate remains below the OECD average (68.1% compared to 69.4% in the OECD in 2022, Figure 1.1). Improving the labour market outcomes of young people and women would allow for stronger and more inclusive growth. France has implemented several reforms that can raise potential output, many of them related to the Recovery and Resilience Plan (RRP) agreed with the European Commission (Box 1.1).

Figure 1.1. The employment rate is below the OECD average

Source: OECD Economic Outlook database; OECD Labour Force Statistics database; and OECD calculations.

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Improving education outcomes can help to revive potential growth. Outcomes achieved in 2022 under the Programme for International Student Assessment (PISA) are close to the OECD average (Figure 1.2) but are highly correlated to socio-economic background. When compared with the survey conducted in 2018, performance scores of French students fell by more than the average OECD country in 2022 (OECD, 2023[1]). Numerous challenges lie ahead, including reducing inequalities in student performances, making the teaching profession more attractive, better connecting education to the present and future needs of the labour market and improving well-being at school.

Figure 1.2. Students level is average according to PISA scores

1.Indicator reversed so that the right side of the scale mostly corresponds to better outcomes.

Note: Relative poverty rate is determined after taxes and transfers based on a poverty line at 60% of median household income. Average PISA score is the average scores in mathematics, science and reading. For gender pay gap, OECD EUR is the unweighted average of OECD European countries.

Source: OECD Income Distribution database; OECD Labour Force Statistics database; OECD PISA database; OECD Education at a Glance database; Eurostat; and OECD calculations.

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Sizeable fiscal support both during the pandemic, and more recently to shelter households and firms from high inflation, allowed the economy to effectively withstand these external shocks, but it also widened the fiscal deficit. Public debt, which was already at 97% of GDP before the pandemic, increased to 110% of GDP by the end of 2023. The 2023 pension reform is expected to reduce the deficit of the pension system but will not eliminate it. While public spending helps to reduce social inequalities, its ratio to GDP is the highest in the OECD. Accordingly, taxation is one of the heaviest in the OECD, thus hampering competitiveness and potential growth. There is room to reduce public spending and make it more efficient. Boosting potential GDP growth would make it easier to achieve a substantial and much-needed fiscal consolidation. Future external shocks will warrant targeted responses to support households and firms most at risk, rather than broader measures such as VAT rate cuts.

The imperative to reduce public deficits is all the more urgent as climate change will result in significant costs for the economy and in particular for public finances, whether through the investments necessary to limit its impact or through the damage it will cause. France is committed to reducing greenhouse gas (GHG) emissions and has already lowered them by one quarter between 1990 and 2021 (Figure 1.3). France has implemented environmental planning to coordinate long-term climate change mitigation and environmental preservation efforts. Initiatives include creating fiscal incentives and disincentives, developing renewable energy, promoting energy efficiency and adapting to the impact of climate change. Net effective carbon prices remain high on average, but uneven across sectors. The share of renewable energy sources is comparable to that of peers and has potential for further increases. France still offers substantial implicit fossil fuel subsidies, particularly to farmers and fishermen. In order to reach the ambitious targets set for 2030, further mitigation policies will need to be implemented across the transport, building, industry, energy and agricultural sectors. Supporting vulnerable firms and households will be key to their success.

Box 1.1. Recent and upcoming reforms in France

Several major structural reforms have been implemented since the previous Survey in October 2021 or are planned to be undertaken in the short term.

• In February 2022, a law aimed at improving local public administration was approved.

• The pension reform came into force in September 2023 and introduces a gradual raising of the statutory retirement age from 62 to 64. The main special pension regimes are merged with the general regime for new employees. Since September 2023, minimum pensions have been raised by 100 euros per month, based on a full career and will be indexed to the minimum wage (SMIC).

• The February 2023 unemployment insurance reform aligns benefit duration with the economic cycle. Unemployment benefit duration is reduced by 25% whenever the unemployment rate is below 9% and has not increased by more than 0.8 percentage points in the past quarter.

• The law on full employment approved in November 2023 will enhance synergies between employment services by creating a “network for employment” coordinated by a new body named “France Travail”, which replaces Pôle Emploi, providing more effective and specific support for job seekers. Eligibility for minimum income benefits (“revenu de solidarité active”) will be made conditional on 15 hours of activity per week, which can include training, internships or career guidance.

• Vocational upper-secondary schools were reformed in 2023 with the objective of improving the integration of students into employment, enhancing the appeal of vocational pathways and adapting programmes to the needs of the labour market.

• Future reforms in education were announced by the Government in December 2023 and January 2024. These include grouping students in classes according to their level in mathematics and French to encourage more innovative teaching methods, bolstering remediation pathways for struggling students and introducing a foundation year for students who do not pass the national exam at the end of lower-secondary school.

• In 2023, annual spending reviews were introduced for the first time, as part of the Public Finance Programming Law.

Against this background, the main messages of this Survey are the following:

• Reducing public debt should be a priority and requires implementing a short and medium-term fiscal consolidation plan. Public spending should be lowered, by altering the trajectory of the wage bill, streamlining social and healthcare expenditure, and improving the efficiency of public services. Tax expenditures should also be reduced.

• Low potential growth can be revived by continuing to implement policies supporting innovation and acquisition of digital skills and reducing regulatory barriers to competition. Labour market policies should strengthen incentives for older workers to participate in the labour force and prioritise those among young people who are the furthest away from finding employment.

• Fulfilling the ambitious greenhouse gas emissions reduction objectives set for 2030 will require boosting environmental policies in transport, construction, industry, energy and agriculture, further aligning carbon prices across sectors and accelerating the phase-out of remaining implicit fossil fuel subsidies.

• Spending on education is above the OECD average but outcomes are not commensurate and strongly linked to student’s socio-economic background. Education can be improved by continuing to make the teaching profession more attractive and allocate more resources to disadvantaged students and more autonomy and responsibility to schools.

Figure 1.3. The share of energy from renewable sources can be increased

1. Indicator reversed so that the right side of the scale corresponds to a better outcome.

Note: Greenhouse gas (GHG) emissions exclude excluding land use, land-use change and forestry (LULUCF). The indicator is expressed in GHG emissions per unit of GDP, measured in 2015 PPP USD, and represents the GHG intensity of economic activity. “Fine particles intensities” shows PM_2.5 particulates emission per inhabitant is the fine particles intensities. For this indicator, the OECD unweighted average excludes Australia, Colombia, Costa Rica, Israel, Japan, Mexico, and New Zealand. The “Household energy consumption” is the energy consumption per square metrem² of households for space heating scaled to the EU average climate. OECD EUR is the unweighted average of OECD European countries.

Source: OECD Green Growth Indicators database; Odyssee-Mure; IEA World Energy Balances database; and OECD calculations.

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