The rating agencies Moody’s and Fitch delivered their respective spring verdicts on French sovereign debt on the evening of Friday April 26: both maintain their assessment unchanged.
Moody’s maintained the Aa2 level with a stable outlook, deeming France’s default risk very low despite the recent deterioration of the country’s public finances. For its part, Fitch, which had downgraded France’s rating in 2023, left it at level AA–, with a stable outlook as well.
The French Minister of Economy and Finance, Bruno Le Maire, declared on Friday that he had “taken note” of the verdicts of the two agencies. “This decision should invite us to redouble our determination to restore our public finances and meet the objective set by the President of the Republic: to be below 3% [of gross domestic product (GDP)] deficit in 2027,” a- he declared in a press release. “We will stick to our strategy based on growth and full employment, structural reforms and the reduction of public spending,” assures the minister.
A succession of disappointments
These verdicts constitute a relief for Mr. Le Maire because the rating of the agencies comes after a succession of disappointments in Bercy’s forecasts.
In February, the government had to lower expected growth this year from 1.4% to 1%, and announce that it had to urgently find 10 billion in savings in the state budget. At the end of March, it was the National Institute of Statistics (Insee) which announced that the public deficit had slipped to 5.5% of GDP in 2023, instead of the expected 4.9%. Finally, the public deficit for 2024, forecast at 4.4%, was raised to 5.1% of GDP by Bercy, who promised a new effort of 10 billion euros until the end of the year.
These differences in macroeconomic forecasts come, according to La Banque Postale economists, from “revenues 21 billion euros lower than expected” in 2023, more than from expenses which, for their part, “have been controlled”, and are increasing by 3.7% compared to 4% in 2022.
Rating agencies are also concerned about the amount of debt, which exceeds 3,000 billion euros and now reaches 110.6% of French GDP. “The French debt is 22 points of GDP above the euro zone average”, observe the economists in their latest decryption note “Rebound”: “It is the third highest ratio in the European Union , after Greece and Italy. »
Objectives deemed “out of reach”
In April 2023, Fitch downgraded France’s sovereign rating, lowering it by one notch to AA–, with a “stable” outlook. This month, while deeming the deficit reduction objectives put forward by the government by 2027 “unambitious and increasingly out of reach”, the agency announced that it would not lower the rating again, barring “unlikely” further significant worsening of the debt.
As for Moody’s, which places France at Aa2 – one notch above Fitch – with a “stable” outlook, it also judges it “unlikely”, like the International Monetary Fund or the High Council of Public Finances (HCFP), the hypothesis of a recovery in the public deficit below 3% of GDP in 2027, announced by the government to comply with Brussels’ obligations. The American agency had already highlighted, at the end of March, “the risks” linked to “optimistic economic and revenue assumptions, as well as unprecedented reductions in spending”.
France lost its AAA in 2012, marking the safest sovereign debts, like that of Germany currently. But, despite their recurring criticism, the agencies have shown a certain “magnanimity” towards Paris in recent years, maintaining its ratings among the best in the world, due to the “liquidity” of its debt or the solidity French banks, notes Eric Dor, director of economic studies at the Ieseg School of Management.
Bruno Le Maire, for his part, wants to remain “serene” in the storm: “The agencies are doing their job, I am doing my job as Minister of Finance which consists of restoring the public accounts,” he said again, Wednesday, on BFM Business. The minister will still have to face the verdict of the third agency, the most watched, on May 31, nine days before the European elections. S