France’s credit rating has been downgraded by Fitch, a leading global ratings agency, from “AA-” to “A+”, citing the country’s struggles with political instability and its inability to implement effective measures to address its strained public finances. This decision comes amid heightened uncertainty, following the resignation of Prime Minister Francois Bayrou after losing a parliamentary confidence vote over an austerity budget.
The downgrade reflects concerns over France’s rising debt, which is expected to continue increasing until 2027 unless drastic measures are taken. Fitch noted that the political instability, characterized by increased fragmentation and polarization, hinders the government’s ability to deliver substantial fiscal consolidation. As a result, it is unlikely that the fiscal deficit will be reduced to three percent of GDP by 2029, as previously aimed.
Outgoing Economy Minister Eric Lombard acknowledged the agency’s move but emphasized the solidity of the French economy. However, the rating downgrade is expected to raise the risk premium investors demand for buying sovereign bonds, potentially increasing the cost of servicing France’s debt. This development could have significant implications for the country’s financial stability, especially considering its already high debt levels, which stood at 113 percent of GDP last year.
The situation is further complicated by the fact that President Emmanuel Macron’s allies lack an overall majority in parliament, making it necessary for them to compromise on any spending cuts and tax increases. This could undermine efforts to address the country’s financial challenges, with the new Prime Minister, Sebastien Lecornu, facing a daunting task in drafting a budget for next year.
France’s budget deficit and debt levels exceed the eurozone’s recommended ceilings, with a deficit of 5.8 percent of GDP and debt of 113 percent of GDP. Fitch projects that the debt will increase to 121 percent of GDP by 2027, absent a clear plan for stabilization. This rising public indebtedness constrains France’s capacity to respond to new economic shocks without further deteriorating its public finances.
Despite these challenges, France is still targeting cautious economic growth this year, with the national statistics bureau, INSEE, projecting a 0.8 percent increase in GDP for 2025. The development comes as rival agency S&P Global is set to update its sovereign rating for France in November, which will be closely watched for any further indications of the country’s fiscal health.
The credit rating downgrade by Fitch serves as a reminder of the urgent need for France to address its public finance challenges and implement effective measures to ensure long-term economic stability. As the country navigates its political and economic landscape, the implications of this downgrade will be keenly observed, both domestically and internationally.
