Fitch downgrades France from AA- to A+
Stable outlook: the country is affected by political fragmentation, but the economic structure remains solid abroad
4' min read
4' min read
Fitch is downgrading French debt: the rating agency's grade has changed to A+ with a stable outlook, from AA- with a negative outlook. There are several reasons for this: high debt, political fragmentation that makes fiscal consolidation difficult, but also "weaknesses in fiscal management", both in consolidation and in compliance with EU rules. The path to budget restructuring therefore appears 'uncertain'. On the other hand, the stable outlook is linked to the strength of the French economy and a solid external financial situation.
High debt "without a clear horizon"
.The decision was expected, but not taken for granted, even though the move from 'double A' to single A makes clear and seals the vulnerabilities of the country, which retains structural strengths but is going through a long phase of difficulties in terms of fiscal management. Fitch recalls the rapid increase in debt, which is now targeting, according to the agency's estimates, 121.7 per cent of GDP in 2027 from 113.2 per cent in 2024 'with no clear horizon for debt stabilisation in subsequent years'. The debt level is already double the median of countries in the A category. The increase in debt has reduced, Fitch points out, the country's ability to respond to any new shocks 'without deteriorating public finances'.
Political instability also after Macron
A decisive factor was also political instability, a new fact for a country that - as Fitch itself points out - has a high long-term score in governance. The fragmentation of the parties 'makes it unlikely that the overall deficit will be reduced by 3 per cent by 2029, as envisaged by the outgoing government'. According to Fitch, the approaching 2027 presidential election will complicate the situation, and it remains 'highly likely that the political stalemate will continue after the vote'.
"Weak" fiscal management
.France also has a 'weakness in fiscal management'. Fitch points out that 'there have been periods of fiscal consolidation in the past, but the overall deficit has exceeded 3 per cent of GDP in all but three of the past 20 years, and there has not been a primary surplus since 2001'. France, it may be added, does not in fact have the financial culture and the habit of Germany and Italy of closing public budgets with a primary surplus regardless of the colour of the governments in office: Berlin achieved a plus sign from '97 to '99 (2000 was a breakeven), from 2006 to 2008 and from 2011 to 2019, Rome recorded a minus sign only in 2010 and from 2020 to 2023.
A "strong social opposition" to cuts
.Even in the 2025 budget, much of the consolidation is linked to 'temporary' revenue-raising measures: Fitch now forecasts a deficit of 5.5 per cent for this year, not far from the government's target of 5.4 per cent. The EU median, however, the agency points out, is 2.7 per cent and the median for A-rated countries is 2.9 per cent. Fiscal rigidities make consolidation difficult: the tax burden is 45.6 per cent of GDP, against an EU average (of 2023) of 40 per cent, while spending cuts have had 'limited results over the past decade and have met with considerable political and social opposition'. French social spending, the agency recalls, is 32% of GDP, against an EU average of 26%.
