RTTNews - High public debt and the fiscal stimulus are likely to significantly worsen France's fiscal outlook over the medium term, the International Monetary Fund or IMF warned Sunday. In addition, the IMF said the fall in tax revenues in 2009-10 due to the sharp contraction in economic output will lead to uncomfortably high fiscal deficits.

"France's main fiscal challenge remains to consolidate its public finances as current policies would lead to an unsustainable debt dynamics," the IMF said in a report.

Looking ahead, rising debt service obligations will aggravate the fiscal costs related to population aging, the IMF said and recommended decisive implementation of a clear consolidation strategy at all levels of government in the 2010 budget.

Moreover, the IMF said, "The economic contraction is expected to slow in the remainder of 2009, followed by a sluggish return to growth beginning in early 2010.

It added that annual consumer price inflation will dip below zero during the summer months but, given entrenched wage and price rigidities, inflation is expected to rebound somewhat in 2010.

The IMF warned that as two-thirds of French exports are destined to the European Union, the economy would be seriously affected by a further contraction in the region. In addition, a worsening of the financial crisis could hurt banks' balance sheets and further depress credit growth. Rising unemployment this year and next could further shake confidence and weaken private consumption, which has been the bedrock of aggregate demand thus far.

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