One more warning for Michel Barnier. The American company Fitch decided, on Friday, October 11, not to immediately lower the rating given to the French debt, maintaining it at AA−, equivalent to 17 out of 20, but added a “negative perspective”. It is clear that if the situation is not rectified quickly, if promises to restore public accounts are not fulfilled, the rating risks being revised downwards during the next review.
The new Minister of the Economy, Antoine Armand, immediately “taken note” of Fitch’s decision, and reaffirmed “the government’s determination to right the trajectory of public finances and control debt.”
For now, the French accounts may seem out of control. The public deficit, which, after an initial decline in 2023, was initially expected to return to 4.4% of gross domestic product (GDP) in 2024, has every chance, on the contrary, of worsening. The State’s large financiers will be satisfied if it does not exceed 6.1% of GDP at the end of the year.
“Persistent political uncertainty”
The 2025 austerity budget presented on Thursday is supposed to mark a first change and reduce the deficit to 5% of GDP, but many experts doubt that this goal can be achieved. Fitch, on the other hand, expects 5.4% of GDP in 2025 as in 2026“taking into account the continued political uncertainty and the risks of implementing certain measures.” The agency is betting that the budget will be enacted before the end of the year, “But the government may have to make concessions to secure the support of opposition parties.”
Looking to the future, the Government is preparing to negotiate with Brussels to postpone from 2027 to 2029 the date on which the deficit should fall below the limit of 3% of GDP provided for in the treaties. But once again, Fitch does not believe this goal can be achieved by 2029.
This warning from Fitch – pending the decisions of the other agencies, Moody’s at the end of October and Standard & Poor’s in November – underlines once again the erosion of the French government’s credibility in the financial markets. The drift of the deficit has raised doubts about the reliability of the Ministry of Economy. “For a long time, Bercy lied credibly, says Hadrien Camatte, a French economist at Natixis, an investment bank. Now it’s starting to show. »
Concern about “permanent disappointment”
One sign of this crisis of confidence is that Japanese investors, long big buyers of French debt, have begun to withdraw. “The argument that there will always be Japanese investors to buy debt is obsolete, says Raphaël Gallardo, chief economist at Carmignac, a French asset management company. Inflation has returned to Japan, interest rates have increased and will continue to normalize under the rule of the [premier ministre Shigeru] Ishiba: Therefore, Japanese investors no longer necessarily need to come to Europe in search of profitability. »
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