A lesser evil. While Fitch, Morningstar DBRS and S&P Global have decided in recent weeks to lower France’s rating, Moody’s announced this Friday, October 24, maintaining its rating at Aa3 but lowering its outlook from “stable” to “negative.”
The agency highlights the risk of a “lasting fragmentation of the country’s political landscape”, which could “harm the functioning of institutions”, while governments “continue to struggle to obtain a parliamentary majority”.
The inability to obtain laws that “effectively address the challenges would weaken the country’s institutions,” he continues.
The French Minister of Economy and Finance, Roland Lescure, “immediately took note” of the decision, which according to him “testifies to the absolute need to build a collective path towards a budgetary compromise.”
A difficult decision to “explain”
Moody’s thus puts an end to a sequence of successive rating downgrades within a month. In mid-September, Fitch began downgrading France’s rating from AA- (good quality debt) to A+ (upper medium quality debt). S&P Global did the same last Friday. Morningstar DBRS also downgraded the French rating in September.
For Éric Dor, director of economic studies at the IESEG School of Administration, this simple reduction in prospects is difficult “to explain”, knowing that some of our neighbors, such as Spain and Portugal, are worse rated by Moody’s “while these countries have much lower public deficits, lower public debt with a downward trend and much better growth.”
Growth penalized by political instability
All agencies have highlighted in recent weeks the political instability since the dissolution, which weighs on public finances and partially paralyzes two engines of growth, household consumption – their savings rate reached 18.9% of their income in the second quarter – and investments, which fell in 2024 by 5.6% for households, according to INSEE, and 2.4% for companies. The government now expects growth of 0.7% this year and 1% in 2026.
In addition, Moody’s had already warned last April that “a setback in the reforms applied since 2017, such as labor market liberalization and pension reform, would be negative for credit if it is determined that this political choice would have significantly negative medium-term consequences on France’s growth potential and/or budgetary trajectory.” However, the government granted the opposition a suspension of pension reform until 2028, hoping to save its budget in Parliament.
The 2026 budget challenge
However, France should remain under the surveillance of the agencies in the coming weeks because nothing says that the 2026 budget will be voted on, the examination of which began this week in Parliament. Even if it were, would its content be enough to truly clean up the public accounts?
The president of the Court of Auditors, Pierre Moscovici, warned on Wednesday that this text should make it possible to reduce the public deficit “very clearly below 5%” of GDP next year (compared to 5.4% this year), to maintain the trajectory promised in Brussels of a return below 3% in 2029. However, the first budget discussions are moving away from this. If the Finance Committee of the National Assembly rejected overnight from Wednesday to Thursday the revenue part of the Finance bill, it had previously reduced the text by 7 billion euros in taxes, demanding that the expenditure part be reduced accordingly so as not to degrade the government’s target of a public deficit of 4.7% of GDP next year.
The first secretary of the Socialist Party, Olivier Faure, issued an ultimatum to the government, warning that “if there is no news before Monday” on the budget, in particular on taxation of the ultra-rich, the PS will vote to censure the government. A decision that could lead to a new dissolution that will plunge France a little deeper into the political crisis.
Source: BFM TV
