Budget 2025: the S&P rating agency does not downgrade France's rating, despite political uncertainty

The government can breathe a big “phew” of relief. A rare moment of respite in an unstable political context where ministers know their days are surely numbered. The financial rating agency Standard & Poor's (S&P) has decided not to downgrade France's rating. This note concerns the confidence placed by the agency in the solvency of French debt. Financial analysts therefore consider that France will have no more difficulty repaying this debt than 6 months ago, at the time of the previous rating.

At that time, the agency had lowered the French rating (from AA to AA-), a first since 2013. This rating remains among the best in the scale (it is equivalent to 17/20) but still caused a decline France on the same level as lesser economic powers, such as Estonia or the Czech Republic.

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While it remains good news, this announcement is not surprising in the sense that rating agencies are not in the habit of regularly changing their ratings.

“Beyond 2025, the budgetary trajectory is uncertain”

In its analysis, S&P nevertheless believes that “increasing political fragmentation complicates” budgetary decisions. The budget cuts promised by Michel Barnier and his government are likely to reassure investors but doubt persists about the possibility of their application. The agency even speaks of a “considerable risk” that they will ultimately never be included in the budget. Their hypothesis that the budget deficit should be reduced by “a little less than 1% of GDP”.

Another source of concern for analysts is that “beyond 2025, the budgetary trajectory is uncertain”. For 2025, the 42 billion savings initially planned have already been cut by 9 to 10 billion by parliamentary negotiations. Instead of the 5% deficit target planned for next year, S&P is betting on 5.3% and the government is now talking about a deficit “around 5%”.

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“France remains a balanced, open, rich and diversified economy,” the agency clarifies. S&P expects the country to “gradually consolidate its public finances in the medium term.” Without this, France could, in the medium term, see its evaluation degraded again to come closer to those of the EU's poor performers.