2023-06-02 22:19:14
After Fitch’s bad rating in April, it’s a relief, at least temporary, for the government: the agency S&P Global (formerly Standard and Poor’s), one of the most influential, has maintained France’s rating , Friday, June 2, keeping it at the “AA” level. “This is mainly due to the revision of the government’s fiscal consolidation strategy”writes the rating agency, citing as positive facts, in addition to the pension reform, the scheduled end of energy aid thanks to the fall in the price of hydrocarbons.
The Minister of the Economy, Bruno Le Maire, welcomed “a positive signal”. “Our public finance strategy is clear. She is ambitious. And she’s believable. he told the JDD. He also declared that he would announce, on June 19, the first billion euros of savings for the 2024 budget. He had already announced the end of gas subsidies (“tariff shield”), whose prices fell at the end of the year.
The rating agency, one of the three main with Fitch and Moody’s, however maintained its outlook “negative”, raising the specter of a future decline in the event of a slippage. S&P warns of “risks” relating to the execution of government budgetary objectives: “They include the absence of an absolute majority in the French Parliament since mid-2022, which could complicate the implementation of policies, as well as uncertainties within the global and European economies, and tighter financing conditions”. Going forward, the agency emphasizes that “Political fragmentation adds uncertainty to the government’s ability to put in place policies conducive to economic growth and fiscal consolidation”.
“Very close discussions”
The deadline was taken very seriously by a government, anxious to display a solid economic policy and a serious budget. Questioned on Sunday, the Prime Minister, Elisabeth Borne, had affirmed on Radio J that the Minister of the Economy had had “very close discussions” with the agency “on everything we do to control our public finances”. The government will be “intractable” on reducing deficits, had hammered Bruno Le Maire on France Inter on Wednesdayjudging “convincing” ses « bons arguments » developed before S&P, while acknowledging “very frankly” ignore what the verdict of this agency would be.
The downgrading of the rating may have the effect of increasing the interest on French loans to investors, the latter demanding more to agree to lend to France. However, the interest rates on ten-year loans have already been at high levels for eleven years due to rate hikes by the European Central Bank, which is fighting against inflation and is mechanically driving up the loan rates for euro zone states.
S&P has rated France since 1975 and has downgraded its rating only twice. It was also the first to have withdrawn from France its emblematic “triple A” in 2011, the best possible rating and symbol of excellent management, from which a small circle still benefits from the three agencies, like the Germany, the Netherlands and Australia.
Rated better than it deserves
At the end of April, Fitch highlighted “political deadlock” of the government to justify its downgrading from “AA” to “AA-” – a comment that had aroused the ire of Emmanuel Macron. For its part, Moody’s mentioned the “weak mandate” available to the government in a comment which did not, however, lead to a downgrade. The European rating agency Scope Ratings, less watched than its counterparts but which lowered its outlook for France by « stable » To “negative” on May 26, invoked “the absence of a majority in Parliament”likely to complicate the trajectory of deficit and debt reduction.
In the face of numbers, however, France seems better rated than it deserves, had analyzed Fitch. It has the highest indebtedness of countries in the “AA” category, and has twice the median indebtedness in this category. S&P notes that public debt will remain above 110% of GDP in the period 2023-2026, “with a persistent, albeit declining, budget deficit”. The debt was at 111.6% of GDP in 2022, and the government is aiming for 108% in 2027.
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After reaching 4.7% in 2022, the French public deficit should rise slightly this year to 4.9% before gradually declining from 2024, anticipates the government in its stability program published in recent weeks, which is counting on a return to the European budgetary peaks, i.e. below 3%, in 2027.
S&P does not seem to believe it, however, since even if it does not give forecasts for 2027, it expects a deficit of 3.8% in 2026, after 4.6% between 2023 and 2025 (compared to 4.9% in its previous estimate).
On growth, it expects an annual increase of 1.2% on average between 2023 and 2026, against 1.5% forecast by the government.
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