In view of the deficits which are weighing down French public finances, the sanction has fallen, but remains light. This Friday, October 11, barely twenty-four hours after the presentation of the Barnier government’s budget, the American rating agency Fitch decided to maintain France’s rating at “AA-” but “with a negative outlook”, compared to a “stable outlook” previously. A depreciation which can push up the interest rates at which France borrows on the financial markets.
“Fiscal policy risks have increased since our last review,” explains Fitch, whose previous note published on France dates back to April. “This year’s expected budget slippage places 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”specifies Fitch. A drop in appreciation which the government has “taken note” Friday evening.
Alongside Moody’s and S&P Global, Fitch is one of the “Big Three”, the three largest global rating agencies. Their role is to assess the financial health of another company or a public entity, but above all their ability to repay a debt.
During its last assessment of French finances in April – a status quo – the rating agency had already warned of a downside risk in the event of “significant and persistent increase in debt […] resulting from higher than expected public deficits. And France had precisely made brutal revisions to its deficit forecast for 2024, going from 4.4% at the end of 2023 to 5.1% in April, finally peaking at 6.1% of GDP.
A downgrade generally has the effect of raising borrowing rates from investors. The ten-year rate, a benchmark for international comparisons, is already higher for France than that of Spain and Portugal, countries formerly known to spend more. This increase in prices then increases the burden of the debt, today the second largest French budgetary item.
But the question of the attractiveness of French debt does not arise today: the latest long-term loan of 12 billion euros at the beginning of October resulted in investor demand significantly higher than French needs. Furthermore, the difference between the borrowing rate in France and Germany, a country considered the safest in the euro zone, remains at a level considered to be of little concern.
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, before S&P Global on November 29.
