French President Francois Hollande's labour reforms, which would make it cheaper to hire and fire employees, are a “necessary step” to bring down the country's near 10-percent unemployment rate, said the IMF's annual review of the economy.
The job market reforms have angered French unions, which are blockading refineries around the country in protest, drying up supplies at petrol stations and forcing many motorists to queue for rationed supplies.
“The economy is recovering, but not at a pace that will bring about the needed reduction in France's high level of unemployment and public debt,” said the IMF staff report.
The IMF predicted France's economy would grow by close to 1.5 percent in 2016, in line with government forecasts. That compared with the IMF's previous forecast of a 1.1-percent expansion.
France's job market is not adapted to a changing global economy, the IMF said.
It cited the widespread use of centralised labour agreements; long and uncertain legal cases triggered by dismissals; a “relatively high” minimum wage; “relatively easy access” to jobless and welfare benefits; and a “sizeable” labour tax.
Hardest hit by the effects of this are the young, low skilled, and immigrants, the Fund said.
France's planned labour market reforms would encourage hiring by making it easier to strike company-level labour agreements and by removing some of the legal uncertainty over dismissals, the IMF said.
The French government controversially forced the labour market legislation through the National Assembly without a vote earlier this month. The legislation still faces a vote in the Senate, the upper house of parliament.
“Important barriers to job creation remain, however,” the Fund said.
It called for further steps such as requiring people to make contributions for a longer period before they qualify for jobless benefits and by setting a unified maximum unemployment benefit period of two years.
Moreover, it said, the education and training system had to adapt to the work market's changing needs.
In addition, France has to further control state spending if it is to curb the public deficit, the IMF said.
The French deficit dipped to the equivalent of 3.6 of annual economic output in 2015, it said.
Yet on its existing course France would “barely meet” its 2016 target of lowering that deficit figure to 3.0 percent, it said, while failing outright to meet its objective of achieving a structural balance within five years.
Accumulated public debt will peak at 98 of gross domestic product in 2017 and decline only slowly after that, the IMF predicted.