Strikes, protests notwithstanding, IMF prods France to reform

PARIS (Reuters) - France's economy is not recovering quickly enough to cut unemployment and debt significantly, and will not do so without further reforms, the International Monetary Fund said on Tuesday despite slightly raising its growth estimates.

Yet deeper reforms won't be easy. The IMF's warning came as President Francois Hollande's government squared off with unions carrying out refinery, port and rail strikes over plans to ease protective labor regulations and make hiring and firing easier.

The French economy is set to grow close to 1.5 percent this year and 1.75 percent on average in the coming five years, the IMF said in the preliminary findings of an annual review of France. Previously, the institution had forecast 1.1 percent growth this year and 1.3 percent next year.

The more optimistic outlook lends some credence to the government's own forecasts for growth of 1.5 percent this year and next, which many economists say is the bare minimum necessary to get unemployment falling.

"The bottom line is that the pace of growth that we project for the medium term ... will not lead to a very fast reduction in unemployment or debt," IMF France mission chief Christian Mumssen told reporters.

Less than a year away from a presidential election in which Hollande has yet to say whether he will run, the Socialist government is banking on business-friendly reforms to the labor market to stimulate job growth and bring down unemployment, currently stuck at about 10 percent.

Those reforms, which the government forced through the lower house of parliament without a vote to dodge a rebellion, have infuriated trade unions and driven a wedge through the ruling Socialist Party.

On Tuesday, riot police fired tear gas and water canon to break through a picket line outside an Exxon Mobil Corp oil complex and at least five refineries nationwide were either shut down or in the process of halting operations as scores of fuel stations across the country ran dry.

"There is no petrol anywhere," said one motorist who had queued for two hours. "I feel upset because we seem to be have been taken hostage by this strike, which has quickly spread. So yes I am upset. But then I understand, I understand why they must go on strike, and why we must respect it."

Hollande has staked his bid for a second term on his ability to drive unemployment lower. The IMF said job creation would nonetheless lag growth unless the government did even more to overhaul the labor market than now proposed.

It recommended in particular tightening rules for receiving unemployment benefits, a move which would likely be a red flag for unions.

DEBT

Turning to government finances, the IMF said a recent improvement came from recovering growth and falling interest rates rather than reduced spending.

Without a greater effort, France's reduction in the public deficit will be just barely in line with its target of three percent of economic output next year, the IMF said.

It estimated debt would peak at 98 percent of gross domestic product in 2017.

It also recommended streamlining France's vast civil service and keeping wage growth in check after the government agreed to a two-step salary increase early this year following a six-year freeze.

Meanwhile, social spending would be a ripe source of savings, it said, especially if benefits were increasingly handed out based on need.

Further savings could be found by raising the retirement age and reining in health spending.

(Editing by Andrew Callus/Jeremy Gaunt)