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Ratings agency Moody’s downgraded France’s outlook on Friday, signalling a potential credit rating cut due to concerns over the country’s finances.
Moody’s Ratings said the shift reflects the “increasing risk that France’s government will be unable to implement measures that would prevent sustained wider-than-expected budget deficits and a deterioration in debt affordability.”
It changed France’s outlook from “stable” to “negative.”
In a statement on Friday, the agency affirmed France’s credit rating at Aa2, noting that this was supported by its “large, wealthy, and diversified economy.”
In lowering the outlook, Moody’s stated that the fiscal deterioration observed is “beyond our expectations and stands in contrast to governments in similarly rated countries that are tending to consolidate their public finances.”
France’s new finance minister, Antoine Armand, acknowledged the decision on Friday but maintained that the country can implement “far-reaching reforms.”
He said some reforms have already yielded results and added that the country possesses economic strength while pledging to restore its public finances.
Armand told AFP on Thursday that France must take “credible” steps to address its high deficit.
Risks to profile
For now, Moody’s said risks to France’s credit profile are heightened by its political and institutional environment.
It noted that the situation is “not conducive to coalescing around policy measures that will deliver sustained improvements in the budget balance.”
“As a result, budget management is weaker than we had previously assessed,” it added.
New French Prime Minister Michel Barnier is aiming to bring the public sector deficit below five per cent of gross domestic product next year, down from an expected 6.1 per cent in 2024.
The government hopes that by 2029 it will reduce the deficit to below three per cent, the agreed deficit ceiling for EU members.
This month, Barnier unveiled a deficit-cutting budget.
France’s annual budget debate has often triggered no-confidence motions, and Barnier’s plan sparked vocal opposition even before full details were released.
France’s debt is expected to rise to nearly 115 per cent of GDP next year, compared to the EU debt target of 60 per cent.
In absolute terms, France’s debt stood at over €3.2 trillion, having risen by about €1 trillion since President Emmanuel Macron took office in 2017.
Earlier this month, Fitch Ratings also affirmed France’s rating at AA- but revised its outlook from “stable” to “negative,” pointing to heightened fiscal policy risks.
On Thursday, Armand said, “The work we’ll be doing over the coming months will be to monitor and fine-tune our public spending” to achieve savings.
Budget Minister Laurent Saint-Martin added that the strength of the French economy continued to be recognised, though noting that the country should pursue a structural reform agenda.
AFP
