WASHINGTON, Nov 7: France is finally in sight of getting its finances in line with eurozone rules but needs to step up reforms to accelerate growth and cut unemployment, the International Monetary Fund said on Monday.

In an annual review of the 12-nation eurozone’s second-biggest economy, the IMF welcomed labour market reforms already launched by the French government in a bid to reduce stubbornly high jobless levels.

It predicted French gross domestic product (GDP) would expand by 1.5 per cent in 2005, at the bottom end of the government’s 1.5-2.0pc target range, and by 1.8 per cent next year.

More broadly, the IMF urged France to show the “flexibility necessary” to bring about a successful round of World Trade Organization talks, particularly in agriculture, where France is blocking further reform at the European Union.

The IMF said the French government had trimmed its budget to try to get its public deficit down to an EU limit of 3.0 per cent of GDP for the first time since 2001.

“Directors welcomed the continuing fiscal consolidation in 2005, whereby the objective of reducing the deficit to 3.0pc of GDP was now within reach despite slow growth,” the report said.

The IMF forecast the French deficit to stand at 3.1 per cent of GDP this year. But it said that without policy changes, the deficit would then expand to 3.3 per cent in each of 2006 and 2007, before falling to 2.8pc in 2008.

The IMF said France needs to consolidate reforms and take bolder action in the future.

“To raise the growth potential further and achieve fiscal sustainability, directors urged the authorities to sustain the recent pace of fiscal consolidation in 2006 and beyond and to build further structural reform momentum, especially by broadening recent labour market initiatives,” it said.

The French government’s 2006 draft budget targets a reduction in the deficit to 2.9pc of GDP.

But like the IMF, most economists say the government’s growth projections are overly optimistic and expect the 2006 deficit again to overshoot the ceiling laid down in the EU’s Stability and Growth Pact.

That could put France on track for another confrontation with the EU’s executive commission.

But analysts say that France would likely get away with just a slap on the wrist, as it did in 2003, when deficits in both France and Germany exceeded the 3.0 per cent limit for the first time since the euro’s launch.—AFP