2024-10-11 22:31:00
One more warning for Michel Barnier. The American company Fitch decided, Friday October 11, not to immediately lower the rating given to French debt, keeping it at AA−, the equivalent of 17 out of 20, but it added a “negative outlook”. Clearly, if the situation is not quickly rectified, if the promises to restore public accounts are not kept, the rating risks being revised downwards during the next review.
The new Minister of the Economy, Antoine Armand, immediately “taken note” of Fitch’s decision, and reaffirmed “the government’s determination to straighten out the trajectory of public finances and control debt”.
For now, the French accounts may seem out of control. The public deficit, which, after an initial slippage in 2023, was initially expected to return to 4.4% of gross domestic product (GDP) in 2024, is likely, on the contrary, to worsen. The big financiers of the State will be satisfied if it does not exceed 6.1% of GDP at the end of the year.
“Persistent political uncertainty”
The austerity budget for 2025 presented on Thursday is supposed to mark a first change, and reduce the deficit to 5% of GDP, but many experts doubt that this objective can be achieved. Fitch instead expects 5.4% of GDP in 2025 as in 2026“taking into account the continuing political uncertainty and the risks of implementing certain measures”. The agency is betting that the budget will be promulgated before the end of the year, “but the government may have to make concessions to secure the support of opposition parties.”
Moving forward, the government is preparing to negotiate with Brussels in order to postpone from 2027 to 2029 the date on which the deficit should fall below the limit of 3% of GDP provided for in the treaties. But here again, Fitch does not believe that this objective can be achieved by 2029.
This warning from Fitch – while awaiting the decisions of the other agencies, Moody’s at the end of October then Standard & Poor’s in November – once again underlines the erosion of the credibility of the French government with the financial markets. The drift in the deficit has sowed doubt about the reliability of the Ministry of the Economy. “For a long time, Bercy lied with credibility, says Hadrien Camatte, France economist at Natixis, an investment bank. Now it’s starting to show. »
The worry of “permanent disappointment”
A sign of this crisis of confidence, Japanese investors, long major buyers of French debt, have begun to withdraw. “The argument that there will always be Japanese investors to buy the debt is obsolete, notes Raphaël Gallardo, chief economist at Carmignac, a French asset management company. Inflation is back in Japan, interest rates have risen and will continue to normalize under the mandate of the [premier ministre Shigeru] Ishiba: Japanese investors therefore no longer necessarily need to come to Europe to look for yield. »
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