This could be the fourth setback in just over a month for the credibility of the French firm. After its sisters Fitch, S&P Global and Morningstar DBRS, the rating agency Moody’s could sanction France this Friday afternoon by depriving it of its “double A” in the context of an unprecedented political and budgetary crisis.
Moody’s currently classifies France as Aa3, the equivalent of the AA- that Fitch and S&P still attributed to France before lowering its rating one notch to A+, in September for the former and last week for the latter.
A reduction would be “quite logical”
Will Moody’s also deprive France of its “double A” for an “A1” or will the implementation of the 2026 budget encourage leniency? For Éric Dor, director of economic studies at the IESEG School of Administration, “it would be quite logical” for the agency to “lower France’s rating” because “all the downgrade criteria” communicated by Moody’s itself “are already met.”
During its previous assessment in December 2024, Moody’s warned that a rating downgrade could occur if “the deterioration of French public debt” was “significantly greater” than its projections. However, if the agency expects a public debt of 120% of GDP in 2027, the IMF indicated in its forecasts that France will stand at 122.1% in this time horizon and even at 129.4% in 2030. Similarly, the international institution expects an increase in the public deficit to 5.8% in 2026 (compared to 5.4% this year) and 6.2% in 2027 and 2028. Or more from just over 5% projected by Moody’s for 2027.
Another element that could convince the rating agency to sanction France: the suspension of the pension reform until 2028 announced by the government to avoid censorship. In December, Moody’s explained that “a rollback in reforms implemented since 2017, such as labor market liberalization and pension reform, would be credit negative if it is determined that this policy choice would have significantly negative medium-term consequences on France’s growth potential and/or budgetary trajectory.”
Towards a reduction of perspective?
Instead of downgrading its rating, Moody’s could, in theory, differentiate itself from the other agencies and give France a break. But this “would cause a significant loss of credibility for the agency” given the country’s political and budgetary situation, judges Éric Dor, for whom this scenario is the “least plausible.”
The agency may also decide to reduce its outlook from “stable” to “negative.” Above all because “in a progressive rhythm of adjustment, a rating agency first reduces the outlook (…) and then, in a second stage, decides to lower the rating if no improvement in the outlook is observed”, recalls Alexandre Baradez, head of market analysis at IG France.
This is also the scenario preferred by Paul Chollet, chief economist of the Crédit Mutuel Arkéa trading room. In statements to AFP, he stated that he is confident in this reduction in prospects “while warning of the strong political uncertainty and the worrying trajectory of public finances.” Furthermore, the difference between Moody’s and the other agencies is that it issues its opinion at a time when we have “a government that can hold out for some time, (especially) if the budget were voted on December 31,” he recalls.
France’s qualification, an anomaly compared to its neighbors?
However, a simple reduction of the outlook would be “less easy to explain”, according to Éric Dor, knowing that it is “impossible to explain that Spain and Portugal are rated by Moody’s 3 points below France, while these countries have much smaller public deficits, lower public debt with a downward trend and much better growth.” In the markets, these countries also borrow at a cheaper price than France.
For this reason, Moody’s could “perfectly decide to skip the stage of lowering the outlook and go directly to lowering the rating,” warns Alexandre Baradez. The analyst believes that “the probability of this scenario has increased” with the downgrade of the French rating decided last Friday by S&P, more than a month before the expected date.
Source: BFM TV
