Fitch has made his decision. On Friday evening the rating agency maintained France‘s rating at “AA-”, but placed France with a negative outlook. A decision that comes the day after the presentation of the 2025 budget project which includes an effort of 60 billion euros to contain the surge in the deficit.
Following this announcement, the government stated through the Ministry of Economy that it “takes note” of the negative outlook on France’s rating. “I note that the agency underlines the strength of our large and diversified economy, the effectiveness of our institutions and our history of macrofinancial stability,” reacted the Minister of Economy, Antoine Armand.
“Risks related to fiscal policy have increased since our last review,” explains Fitch, whose previous rating published on France dates back to April. “The budget slip expected for this year 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,” Fitch writes in its press release.
And while the government intends to reduce the French public deficit to 5% of GDP from 2025 and then below 3% in 2029, the Fitch agency does not believe it: it has raised the forecasts for France’s public deficit in 2025 and 2026 “to 5.4% of GDP”. “We do not expect the government to meet its revised medium-term deficit forecast to bring the deficit below 3% of GDP by 2029,” he explains.
Is a decline in growth to be expected?
To demonstrate its goodwill and avoid the risk of a “financial crisis”, in the words of Prime Minister Michel Barnier, the government presented on Thursday its financial bill for 2025 which includes 60 billion euros of efforts in the form of spending cuts and tax increases to reduce the public deficit to 5%.
Economy Minister Antoine Armand said on Friday that he had taken into account the agencies’ “careful look” when drawing up the budget. “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.”
Of “relatively unprecedented” scope, according to the president of the High Council of Public Finances (HCFP), Pierre Moscovici, who analyzed its macroeconomic contours, this potion which mixes tax increases and spending cuts could bring France back onto less slippery after a year 2024 that he described as “black” this Thursday. But it also risks, according to him and economists, weighing on next year’s growth, currently forecast by the government at 1.1%, and complicating future deficit reduction.
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