Fitch Maintains France's Sovereign Rating at AA- Amid Budget Concerns
Despite a substantial increase in budget deficit projections, Fitch refrains from downgrading France's credit rating.
On March 14, 2024, Fitch Ratings announced it would maintain France's sovereign credit rating at 'AA-', despite previously assigning a 'negative outlook' in October, indicating a potential downgrade in the future.
Following the announcement, the French government expressed its determination to continue efforts aimed at fiscal consolidation.
Fitch noted that, although France is facing a 'budgetary slippage' for 2024—projecting a public deficit increase from 4.4% of GDP in 2023 to 6% in 2024—the country possesses a 'vast and diversified economy' supported by 'strong and effective institutions.' However, Fitch also highlighted that the public deficit remains at a high level, with a challenging path to reduction attributed to political uncertainty and the lack of a majority for the Bayrou government in the National Assembly.
The French Ministry of Economy acknowledged Fitch's decision, characterizing the rating as reflecting 'the very high quality' of French creditworthiness while reiterating the negative outlook.
The government affirmed its commitment to the ongoing implementation of a fiscal consolidation trajectory initiated by the 2025 finance law, emphasizing deficit reduction as a priority.
The AA- rating signifies that France's debt is of 'good quality.' A downgrade to an 'A' rating could result in higher interest rates on the markets and potentially make debt servicing the top budgetary priority, surpassing expenditures on national education.
France's debt was recorded at 113.7% of GDP by the end of Q3 2023, with Fitch projecting it to exceed 120% of GDP by the end of 2028.
All three major credit rating agencies—S&P, Fitch, and Moody’s—currently rate France the same, with Moody's maintaining a stable outlook.
Fitch, however, projects a public deficit of 5.5% of GDP for the current year, slightly above the French government’s estimate of 5.4%, and forecasts growth at 0.6%, compared to the government's 0.9%.
The agency attributes this downward revision to risks associated with rising international protectionism and a slowdown in Germany, France's primary trading partner.
Since returning to the White House in January, President Donald Trump has repeatedly threatened increases in American tariffs.
His most recent warning included a proposal to raise duties on European alcoholic beverages to 200% if the European Union does not retract plans to impose a 50% tax on bourbon.
This development has been described as 'particularly worrying' for France, a significant producer of alcoholic beverages.
Fitch acknowledged that some negative factors are somewhat mitigated by increased European defense expenditures, which are expected to benefit France's defense and aerospace sectors.
The European Union is set to significantly enhance its deterrence capabilities against Russia, amidst growing uncertainties related to American foreign policy since January.
While Fitch noted a decrease in political uncertainty in France following the approval of the 2025 budget, it cautioned that 'confidence among businesses and households remains weak.' The potential for a future downgrade persists, as Fitch's commentary indicates that the financial situation in France is perceived as worse than that of its 'AA' rated peers.
The agency warned that failure to implement a credible medium-term fiscal consolidation plan, potentially obstructed by political opposition or social pressures, could lead to a stabilization of debt levels rather than a reduction, thereby serving as a trigger for a rating downgrade.
Following the announcement, the French government expressed its determination to continue efforts aimed at fiscal consolidation.
Fitch noted that, although France is facing a 'budgetary slippage' for 2024—projecting a public deficit increase from 4.4% of GDP in 2023 to 6% in 2024—the country possesses a 'vast and diversified economy' supported by 'strong and effective institutions.' However, Fitch also highlighted that the public deficit remains at a high level, with a challenging path to reduction attributed to political uncertainty and the lack of a majority for the Bayrou government in the National Assembly.
The French Ministry of Economy acknowledged Fitch's decision, characterizing the rating as reflecting 'the very high quality' of French creditworthiness while reiterating the negative outlook.
The government affirmed its commitment to the ongoing implementation of a fiscal consolidation trajectory initiated by the 2025 finance law, emphasizing deficit reduction as a priority.
The AA- rating signifies that France's debt is of 'good quality.' A downgrade to an 'A' rating could result in higher interest rates on the markets and potentially make debt servicing the top budgetary priority, surpassing expenditures on national education.
France's debt was recorded at 113.7% of GDP by the end of Q3 2023, with Fitch projecting it to exceed 120% of GDP by the end of 2028.
All three major credit rating agencies—S&P, Fitch, and Moody’s—currently rate France the same, with Moody's maintaining a stable outlook.
Fitch, however, projects a public deficit of 5.5% of GDP for the current year, slightly above the French government’s estimate of 5.4%, and forecasts growth at 0.6%, compared to the government's 0.9%.
The agency attributes this downward revision to risks associated with rising international protectionism and a slowdown in Germany, France's primary trading partner.
Since returning to the White House in January, President Donald Trump has repeatedly threatened increases in American tariffs.
His most recent warning included a proposal to raise duties on European alcoholic beverages to 200% if the European Union does not retract plans to impose a 50% tax on bourbon.
This development has been described as 'particularly worrying' for France, a significant producer of alcoholic beverages.
Fitch acknowledged that some negative factors are somewhat mitigated by increased European defense expenditures, which are expected to benefit France's defense and aerospace sectors.
The European Union is set to significantly enhance its deterrence capabilities against Russia, amidst growing uncertainties related to American foreign policy since January.
While Fitch noted a decrease in political uncertainty in France following the approval of the 2025 budget, it cautioned that 'confidence among businesses and households remains weak.' The potential for a future downgrade persists, as Fitch's commentary indicates that the financial situation in France is perceived as worse than that of its 'AA' rated peers.
The agency warned that failure to implement a credible medium-term fiscal consolidation plan, potentially obstructed by political opposition or social pressures, could lead to a stabilization of debt levels rather than a reduction, thereby serving as a trigger for a rating downgrade.
