The Fitch rating agency unveils on Friday its diagnosis of the French economy which could lead to a status quo or a downgrade of its rating, the day after the presentation of a draft 2025 budget determined to make 60 billion euros in savings to contain the soaring deficit.
The decision of the American rating agency which grants an “AA-” to France, the equivalent of a 17/20 (i.e. a 17 on a scale of 20 rating levels at Fitch ), is expected in the evening. Fitch may also decide to add a “negative outlook” to its rating without modifying it, synonymous with the risk of future downgrade.
During its last assessment of French finances in April – a status quo – Fitch warned of a downside risk in the event of a “significant and persistent increase in debt (…) in relation to GDP resulting from higher public deficits higher than expected.
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 peak at 6.1% of GDP, and the executive resolved to commit to a longer trajectory to hope to return below the 3% limit tolerated by Brussels, in 2029 now compared to 2027 previously.
“France is an exception” in the euro zone, analyzes the research firm Oxford Economics in a note, stressing that the country “has little chance of significantly reducing its deficit in the coming years”, where most of its neighbors present more optimistic public finance prospects.
For example, Spain plans to post a public deficit of 2.5% next year and Italy 3.3%.
– 2024, “black” year –
To prove its goodwill and avoid a risk of “financial crisis” in the words of Prime Minister Michel Barnier, the government presented on Thursday its finance bill for 2025 providing for 60 billion euros in savings in order to reduce the deficit public at 5%.
“Relatively unprecedented” in scale according to the president of the High Council of Public Finances (HCFP) Pierre Moscovici, who analyzed its macroeconomic contours, this potion mixing tax increases and spending cuts could put France back on less slippery rails. after a year 2024 that he described as “black” on Thursday.
But it also risks, according to him and economists, weighing on growth next year, currently anticipated 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 France’s borrowing rates from investors whose ten-year rate, the benchmark for international comparisons, is already higher than that of Spain and Portugal. , countries formerly known to spend more.
The rise in rates also leads to an increase in the debt burden, today the second largest French budgetary item behind education, all the more worrying since France announced on Thursday a record program of 300 billion euros of borrowing on the markets next year.
However, the question of the attractiveness of French debt for investors does not arise today, France’s latest long-term loan of 12 billion euros at the beginning of October having led to investor demand significantly higher than the needs of France.
Furthermore, the difference between the French borrowing rate and Germany, a country considered the safest in the euro zone, remains at levels considered to be of little concern by analysts.
After Fitch, the rating agency Moody’s, which ranks France a notch above its peers, will give its diagnosis on the French economy on October 25, and S&P Global on November 29.
Related News :