HomeEconomyMoody's agency opens the door to a downgrade of France's rating

Moody’s agency opens the door to a downgrade of France’s rating

The rating agency maintained France’s rating at Aa2 on Friday, but indicated that it plans to lower it in the next six months, changing the outlook from stable to negative, regretting the drift in public accounts.

France escaped a downgrade of its sovereign debt rating by Moody’s on Friday, but is now in a postponement: the agency regretted the situation of public accounts and signaled that it was considering a downgrade in the coming months. Moody’s maintained France’s rating at Aa2, but downgraded the outlook from stable to negative. This decision “reflects the growing risk that the French government is unlikely to implement measures that would prevent larger-than-expected budget deficits,” Moody’s said in its press release.

Moody’s decision comes amid a debate in the National Assembly on the 60 billion euro effort planned by the government in its 2025 budget project to reduce the public deficit to 5% of GDP and try to regain control of a colossal debt. The Minister of Economy, Finance and Industry, Antoine Armand, indicated that he “takes note” of this decision and stated that “France has true economic strength” and is “capable of leading important reforms,” ​​in reaction.

One step above Fitch and S&P ratings

Moody’s, however, lamented a budget deterioration that “exceeds (its) expectations and contrasts with that of the governments of countries with similar ratings.” The rating agency also noted risks “increased by a political and institutional environment that is not conducive to a coalition around policy measures that can sustainably improve budget balance.” The “Aa2” rating is equivalent to 18 on a scale of 20 rating levels. It is one step above the other two large agencies, Fitch and S&P (“AA-“).

Maintaining this rating at this point means that “the solidity of our economy continues to be recognized,” commented Budget Minister Laurent Saint-Martin on Friday afternoon in the chamber of the National Assembly, during debates on the draft budget 2025.

Moody’s decision comes two weeks after Fitch’s, which placed France under a “negative outlook” without revising its rating down. The S&P agency must decide on November 29. In May, it downgraded the French rating from “AA” to “AA-.”

“Our debt is sustainable” according to Antoine Armand

For the moment, French debt continues to attract investors, but its interest rates are now at the level of those of countries such as Portugal or Spain, considered more risky. “Our debt is sustainable, it is purchased, it is financed, it is considered of a certain quality. If we want this to remain the case in the future, we must clean up our accounts and reduce our public spending,” declared Antoine Armand. , in an interview before Moody’s decision was announced.

The debt burden is today the second largest budget item behind education, with more than 50 billion euros, and could become the first in 2027. This further reduces the financial room for maneuver. To preserve France’s credibility, the government wants to reduce public spending in 2025, of which it is the leader in Europe, and increase taxes on companies and wealthy taxpayers. However, he is struggling to convince a fragmented National Assembly, where he is in the minority.

The Government intends to reduce the public deficit from 6.1% of GDP in 2024 to 5% in 2025, and return to European standards in 2029, with 2.8%. While growth would reach 1.1% in 2025 like this year, partially penalized by recovery measures, public debt would continue to increase to almost 115% of GDP, almost double the maximum set at 60% by Brussels. The International Monetary Fund (IMF) has asked France for more “clarity” about its economies.

Author: TT with AFP
Source: BFM TV

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