The S&P rating agency kept France's “AA-” rating and stable outlook unchanged on Friday, highlighting the government's efforts to restore very degraded public finances, while pointing out the risks linked to political instability.
Highly anticipated, the decision of the American agency comes in the midst of a political and budgetary crisis for the government, which is gambling on its survival at the cost of significant concessions on the budget for 2025.
“Despite political uncertainty, we expect France to comply – with a delay – with the European budgetary framework and gradually consolidate its public finances in the medium term,” S&P said in a press release, emphasizing the “open” nature and “diversified” of the French economy.
If maintaining the stable outlook means that the rating should not change in the near future, S&P nevertheless emphasizes that it cannot rule out a downgrade “if the government does not prove capable of reducing its large public deficit or if economic growth falls into decline.” below our projections for a long period.
The Minister of the Economy, Antoine Armand, welcomed S&P's decision, which according to him “testifies to the credit granted to the government to reduce the deficit and restore our public finances”.
“The agency, however, underlines the risk associated with political uncertainty which would call into question this trajectory,” he added in a written reaction sent to the press.
With a minority, the government is multiplying compromises to try to escape a motion of censure, which could take place as early as next week on the Social Security budget if it uses 49.3 to have it adopted without a vote.
– “Considerable risk” –
After a decline in pensions or employer contributions, the government agreed not to increase a tax on electricity beyond its pre-tariff shield level in order to satisfy the National Rally which threatens to ally itself with the left to overthrow him.
Despite everything, the risk remains. The leader of the RN, Marine Le Pen, did not seem willing on Friday to renounce government censorship next week.
In May, S&P lowered the French rating by one notch, from “AA” to “AA-“, the equivalent of a 17 on a scale of 20 rating levels. The two other major global agencies, Moody's and Fitch, issued a warning in October by lowering the outlook to negative.
Despite concessions on his draft budget, which initially planned 60 billion euros in savings in 2025, Prime Minister Michel Barnier assured that he would do “everything to stay around 5%” of the public deficit in relation to GDP, after a slippage expected at 6.1% in 2024. France would return below the European ceiling of 3% in 2029, a trajectory validated on Tuesday by Brussels.
The debt (112% of GDP at almost 3,230 billion euros at the end of June) would only begin to slowly decline from 2028.
In its analysis, S&P notes “several structural improvements” in the French economy in recent years, particularly in favor of competitiveness and employment, and estimates that the measures proposed by the government in its draft budget would make it possible to reduce the deficit by a little less than one point of GDP.
She stresses, however, that there is “a considerable risk that these proposals could be further watered down”, and that “after 2025, the budgetary trajectory is uncertain”.
– “Pensive” –
The political uncertainty, which has continued since the dissolution of the Assembly in June, is already agitating the markets. The spread between French 10-year sovereign rates and those of Germany, considered a safe haven in Europe, reached its peak since 2012 at the start of the week.
France's borrowing rate is higher than those of Spain and Portugal, and for the first time, it briefly exceeded that of Greece.
“S&P's decision leaves us wondering because it amounts to maintaining the rating assigned to French government securities four ranks above” the rating of Spain, commented Denis Ferrand, general manager of Rexecode, in a reaction written to AFP.
“The concessions made to the different camps have further obscured an already very uncertain trajectory even though it had obtained a discharge from the European Commission a few days ago. Obviously, S&P does not make the same reading as market operators,” he added.
