The rating agency Fitch decided to maintain France’s rating at AA-, but places it in a negative perspective, which means that it plans to lower it in the future, it said in a statement sent on Friday afternoon, October 11.
The Minister of Economy, Antoine Armand, indicated “take note” of Fitch’s decision, although he added that “the agency highlights the strength of our large and diverse economy, the effectiveness of our institutions and our history of macrofinancial stability”.
“Fiscal policy risks have increased since our last review”explains Fitch, whose last note published on France dates back to April. “The budget slippage planned for this year puts France in a more unfavorable situation, and we now expect higher budget deficits, which will lead to a sharp increase in public debt until it reaches 118.5% of GDP in 2028”Fitch writes in his press release.
Fitch’s AA- corresponds to a 17/20 (that is, a 17 on Fitch’s 20-level rating scale). The agency’s decision comes a day after the presentation of a draft budget for 2025 that foresees a 60 billion euro effort to contain the growing deficit.
During its last assessment of French finances in April, Fitch warned of a downside risk in the event of“significant and persistent increase in debt (…) compared to the GDP resulting from larger than expected public deficits”.
However, France made brutal revisions to its deficit forecast for 2024, going from 4.4% at the end of 2023 to 5.1% in April to finally reach a maximum of 6.1% of GDP, and the executive resolved to compromise with a longer career with the hope of returning. below the 3% limit tolerated by Brussels, in 2029 now compared to 2027 previously. But the Fitch agency does not believe it: it has raised its public deficit forecasts for France in 2025 and 2026 “5.4% of GDP”.
“We do not expect the government to meet its revised medium-term deficit forecast to reduce the deficit below 3% of GDP by 2029”explains.
“Strong political fragmentation and a minority government complicate France’s ability to implement sustainable fiscal consolidation policies”indicates the rating agency.
A “look” taken into account
To demonstrate goodwill and avoid the risk of “financial crisis”According to the words of Prime Minister Michel Barnier, the Government presented its finance bill for 2025 on Thursday, which foresees 60 billion euros of efforts in the form of spending reductions and tax increases to reduce the public deficit to 5% from 2025.
The Minister of Economy, Antoine Armand, stated on Friday that he had taken into account the “attentive look” agencies in budget development. “We are not making a policy for the rating agencies, but obviously we are analyzing what the international climate is and how the institutes see France”explained on France 2. “And this look is attentive” because “Given the colossal debt we have, given the deficits that continue to decrease, we must take measures”. “The draft budget for 2025 that we have just presented reflects the Government’s determination to straighten the trajectory of public finances and control debt”He also declared.
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Magnitude “relatively unprecedented” According to the president of the High Council of Public Finances (HCFP), Pierre Moscovici, who analyzed the macroeconomic contours, this potion that combines tax increases and spending cuts could put France back on less slippery tracks after a year 2024 that described as “black” THURSDAY.
Growth risks
But it also runs the risk, according to him and economists, of affecting next year’s growth, currently forecast at 1.1% by the government, and complicating the reduction of deficits in the future.
A rating downgrade by an agency generally has the effect of raising the interest rates of investors whose ten-year rate, the benchmark for international comparisons, is already higher than that of Spain and Portugal, countries that previously They were known to spend more.
The rise in rates also causes an increase in the debt burden, today the second largest French budget item behind education, even more worrying since France announced on Thursday a record program of 300 billion euros of debt in the markets on next year.
However, the question of the attractiveness of French debt for investors does not arise today, as France’s latest long-term loan of €12 billion in early October has sparked investor demand significantly higher than needs. from France.
Furthermore, the difference between the French interest rate and that of Germany, a country considered the safest in the euro zone, remains at levels that analysts consider of little concern.
After Fitch, the rating agency Moody’s, which places France above its peers, will give its diagnosis on the French economy on October 25, and S&P Global on November 29. In June, France suffered a downgrade of its sovereign rating by S&P, going from the third AA level to the fourth AA-. This is the first rating downgrade since 2013 by this rating agency.
