2023-10-28 11:28:14
After Moody’s on October 21, the rating agency Fitch maintained France’s rating “AA-”, six months after having downgraded it, while being concerned about the high level of public deficit.
If France can boast of having “a large, rich and diversified economy, strong and efficient institutions and macro-financial stability (…) its public finances, and in particular its significant level of debt, constitute a weak point in its rating,” noted the agency in a press release published this Friday. The Minister of the Economy Bruno Le Maire took “note of Fitch’s decision” in a statement to AFP, saying he was “totally determined to restore France’s public finances”.
Not enough “savings” in 2024
Fitch, which currently gives France a rating of “AA-”, one of the best possible – a sign that the country remains very credible in the eyes of the markets – however judged that the debt reduction trajectory was “limited”. “The draft budget for 2024 and the multiannual program envisage only a limited reduction in the budget deficit, from 4.9% in 2023 to 4.4% in 2024,” notes the rating agency.
Fitch adds that it expects a public deficit of 4.6% in 2024, due to a “lower estimate (than that of the government) of growth” and “the risk that savings (…) will not be made”.
To straighten out the public accounts from 2024, the government has ruled out tax increases and is instead banking on growth, with a forecast of 1.4% deemed “high” by the High Council of Public Finances. It is also counting on the end of exceptional support measures for households and businesses. Debt exceeded 3,000 billion euros in the first quarter of 2023 and France plans to borrow a record amount of 285 billion euros on the markets in 2024.
Fitch’s rating has a “stable” outlook, which means that the agency does not plan to change it in the short term. But a “significant” deterioration in growth prospects, a drop in competitiveness or an increase in the deficit could have a negative impact on France’s rating, she warns.
Standard & Poor’s rating expected in early December
Fitch is the second agency to look at France this year, after Moody’s last Friday which did not update its rating and before Standard & Poor’s (S&P) on December 1st. Although it had few consequences on the markets, the downward revision of the financial rating by Fitch last April was a warning shot.
The agency had notably mentioned “significant budget deficits and modest progress” regarding their reduction, after three years of abundant public spending intended to cushion the shock of Covid and inflation and social tensions around pension reform .
The government will still have to wait another month before breathing: S&P had maintained its rating five months ago but also the “negative” outlook, a downward revision of the rating thus being possible on December 1st. If social tensions have subsided, the government has once again been forced to take responsibility for having Parliament adopt the “revenue” part of the budget, which provides for at least 16 billion euros in savings.
In a recent note, economist Sylvain Bersinger, however, put the importance of the publications of rating agencies into perspective. “In theory, their decisions should have repercussions on the rates at which States take on debt” but “this does not seem to be the case in practice,” he stressed.
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