The Fitch rating agency maintained France’s rating Friday, but placing it under “negative outlook“. This decision comes the day after the presentation of the 2025 draft budget which provides for an effort to “60 billion euros” according to the government to contain the surge in the public deficit.
Antoine Armand, the Minister of Economy and Finance, reacted immediately on Friday evening, saying:take note” of Fitch’s decision. He added, however, that “the agency highlights the strength of our vast and diverse economy, the effectiveness of our institutions and our history of macro-financial stability“.
The equivalent of a 17/20
Fitch still grants an “AA-” to Francewhich is the equivalent of a 17/20 (i.e. a 17 on a scale of 20 rating levels), but adds a “negative outlook“, which means that it plans to downgrade this rating in the future.
The Fitch agency explains that “Fiscal policy risks have increased since our last review“, Who dates back to April. “The expected budget slippage this year puts France in a more unfavorable situation, and we now expect larger budget deficits, which will lead to a sharp increase in public debt to reach 118.5% of GDP by 2028“, writes Fitch in its press release.
Fitch does not believe in a rapid reduction of the French public deficit
The government intends to reduce the French public deficit to 5% of GDP from 2025, then below 3% in 2029. But the agency Fitch doesn’t believe itit raised its public deficit forecasts for France in 2025 and 2026 “at 5.4% of GDP“.
“We do not expect the government to meet its revised medium-term deficit forecast to bring the deficit below 3% of GDP by 2029“, she explains. “Strong political fragmentation and a minority government complicate France’s ability to implement policies ofsustainable fiscal consolidation“, she emphasizes.
2024, the dark year
France has made sharp revisions to its deficit forecast for 2024, passing from 4.4% at the end of 2023 to 5.1% in April then 6.1% of GDP in the draft budget. She “is an exception“in the euro zone, analyzes the research firm Oxford Economics. And the country”is unlikely to significantly reduce its deficit in the coming years“, where most of its neighbors are more rigorous, he emphasizes.
To avoid a risk of “financial crisis” and prove its will, in the words of Prime Minister Michel Barnier, the government presented on Thursday a draft budget for 2025 which provides “60 billion euros” d’efforts in the form of spending cuts and tax increases in order to reduce the public deficit to 5%.
This amount is of a magnitude “relatively new” according to the president of the High Council of Public Finances (HCFP) Pierre Moscovici. By mixing tax increases and spending cuts, this option could put France back on less slippery rails after a year 2024, described as “noire” Thursday. But it also risks, according to him, weighing on growth next year, forecast today at 1.1% by the government, and complicating the reduction of deficits in the future.
