Will France‘s rating remain the same? While the Fitch rating agency unveils its diagnosis of the French economy on Friday, the Minister of Economy, Antoine Armand, says he has taken into account the “careful look” of the agencies in drawing up the 2025 budget presented on Thursday evening and which foresees a 60 billion euro effort to contain the growing deficit.
“We don’t make a policy for the rating agencies, but obviously we look at what the international climate is and how the institutions see France,” he explained to France 2. “And this vision is careful” because “faced with the colossal debt we have, faced with deficits that continue to decrease, we must take measures.”
France is currently rated “AA-”
The American rating agency’s decision is expected in the evening, assigning France an “AA-“, the equivalent of a 17/20 (i.e. a 17 on a scale of 20 Fitch rating levels). Fitch could also decide to add a “negative outlook” to its rating without changing it, synonymous with the risk of future downgrade. During its last assessment of French finances in April – a status quo – Fitch warned of downside risk in the event of “a significant and persistent increase in debt (…) to GDP resulting from public deficits above 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 has decided to commit to a longer trajectory to hope to return below the 3% limit tolerated by Brussels, in 2029 compared to the previous 2027.
“France is an exception” in the euro zone, analyzes the research firm Oxford Economics in a note, underlining that the country “has little chance of significantly reducing its deficit in the coming years”, while most of its neighbors present a more optimistic public finance outlook. For example, Spain expects to record a public deficit of 2.5% next year and Italy 3.3%.
An increase in borrowing rates in the event of a rating drop?
A rating downgrade by an agency generally has the effect of increasing France’s borrowing rates from investors whose ten-year rate, a point of reference for international comparisons, is already higher than that of Spain and Portugal, countries previously known to spend more. The increase in rates also leads to an increase in debt, now the second largest French budget item after education, all the more worrying as France announced on Thursday a record program of 300 billion euros of loans on the markets for next year .
Today, however, the question of the attractiveness of French debt for investors does not arise, given that the latest long-term loan of 12 billion euros granted by France at the beginning of October led to investor demand significantly exceeding the needs of the France. Furthermore, the difference between the French borrowing rate and the German one, a country considered the safest in the euro zone, remains at levels considered of little concern by analysts.
After Fitch, the rating agency Moody’s, which places France a step above its peers, will make its diagnosis on the French economy on October 25, and S&P Global on November 29.
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