The Fitch agency maintains France’s rating but places it under negative outlook

The Fitch rating agency has decided to maintain France’s rating at AA-, but places it under negative outlook, which means that it plans to downgrade it in the future, it indicated in a press release sent Friday October 11 in the evening.

The Minister of the Economy Antoine Armand indicated “take note” of Fitch’s decision, while adding that “the agency highlights the strength of our large and diverse economy, the effectiveness of our institutions and our history of macro-financial stability”.

THE “AA-” of Fitch corresponds to a 17/20 (i.e. a 17 on a scale of 20 rating levels at Fitch). The agency’s decision comes the day after the presentation of a draft 2025 budget which provides for an effort of 60 billion euros to contain the soaring deficit.

During its last assessment of French finances in April – a status quo – Fitch warned of a downside risk in the event of“significant and persistent increase in debt (…) compared to GDP resulting from higher than expected public deficits”.

However, France made brutal revisions to its deficit forecast for 2024, going from 4.4% at the end of 2023 to 5.1% in April to finally peak at 6.1% of GDP, and the executive resolved to commit to a longer trajectory to hope to return below the 3% limit tolerated by Brussels, in 2029 now compared to 2027 previously.

A “look” taken into account

To demonstrate good will and avoid a risk of “financial crisis”in the words of Prime Minister Michel Barnier, the government presented Thursday its finance bill for 2025 providing 60 billion euros of efforts in the form of spending reductions and tax increases in order to reduce the public deficit at 5%.

The Minister of the Economy, Antoine Armand, said earlier Friday that he had taken into account the “attentive look” agencies in developing the budget. “We are not making a policy for rating agencies, but we are obviously looking at what the international climate is and how the institutes view France”he explained on France 2. “And this look, it is attentive” because “faced with the colossal debt we have, faced with the deficits which continue to slip away, we must take measures”.

Magnitude “relatively unprecedented” according to the president of the High Council of Public Finances (HCFP) Pierre Moscovici, who analyzed the macroeconomic contours, this potion mixing tax increases and spending cuts could put France back on less slippery rails after a year 2024 that it described as “black” THURSDAY.

Growth risks

But it also risks, according to him and economists, weighing on growth next year, currently anticipated at 1.1% by the government, and complicating the reduction of deficits in the future.

A rating downgrade by an agency generally has the effect of raising France’s borrowing rates from investors whose ten-year rate, the benchmark for international comparisons, is already higher than that of Spain and Portugal. , countries formerly known to spend more.

The rise in rates also leads to an increase in the debt burden, today the second largest French budgetary item behind education, all the more worrying since France announced on Thursday a record program of 300 billion euros of borrowing on the markets next year.

However, the question of the attractiveness of French debt for investors does not arise today, France’s latest long-term loan of 12 billion euros at the beginning of October having led to investor demand significantly higher than the needs of France.

Furthermore, the difference between the French borrowing rate and Germany, a country considered the safest in the euro zone, remains at levels considered to be of little concern by analysts.

After Fitch, the rating agency Moody’s, which ranks France a notch above its peers, will give its diagnosis on the French economy on October 25, and S&P Global on November 29.