S&P closes the autumn reviews of the major rating agencies for France. The influential rating agency “has decided to maintain” the French debt rating, the Minister of the Economy Bruno Le Maire rejoiced on Friday, December 1st evening. The AA rating it currently gives it is equivalent to Moody’s Aa2. Fitch is one notch lower with AA-, after lowering the rating in April.
But where Moody’s assigns a “stable” outlook to its rating, S&P has a negative outlook that resembles a sword of Damocles. This did not affect French public finances, despite a context of high interest rates. S&P indicates that it anticipates “a reduction in public debt as a percentage of GDP from 2025, albeit very gradually”, and estimates that “the pass-through of the increase in borrowing costs due to high interest rates will be gradual” .
The agency’s experts, however, believe that there are still “significant risks which could, if they materialize, further reduce France’s budgetary flexibility”, citing for example “stricter financing conditions” or ” increased political fragmentation” which would complicate policy implementation. “More than ever, we remain determined to reduce public spending and accelerate France’s debt reduction,” reacted Bruno Le Maire on our national and European commitments.
In his eyes, maintaining France’s rating is a decision “consistent with the government’s choices in terms of public finances”. “I take the maintenance of France’s rating as a positive signal, which encourages us to stay the course on our public finance trajectory”, for his part reacted in a press release the deputy (Renaissance) Jean-René Cazeneuve, rapporteur general budget. Despite a 0.1% contraction in France’s economic activity in the third quarter, Bruno Le Maire continues to expect growth of 1% this year then 1.4% in 2024.
“Credible word
In a context of a slowing European economy, the consensus of economists for France’s growth is only 0.8% for 2024, and was joined on Wednesday by the OECD, which forecast another 1.2%. in September. In June, S&P warned of “risks” on the execution of budgetary objectives, and therefore on the capacity to reduce a debt of more than 3,000 billion euros, the annual repayment of which will become the first item of expenditure of the State in 2027, ahead of Education.
In a note released earlier on Friday, Italian bank UniCredit estimated that S&P could leave its assessment unchanged for the time being “in order to assess the outcome of the public spending reviews recently launched by the government with the aim of reducing for public spending.” “The pension and labor reforms pleased the rating agency,” also noted Eric Dor, director of economic studies at the IESEG School of Management.
However, “even if France maintained an AA rating this time, the risk would remain of a subsequent deterioration”, he observed, for example if debt is not reduced quickly enough. The European Commission warned in November that France risked not being on track in 2024, and a somewhat glorious excessive deficit procedure could target the country next June.
The Minister of the Economy is currently putting forward proposals to ensure full employment and reduce public spending, such as reducing the duration of compensation for unemployed people over 55. According to a government advisor, a deterioration would amount to “calling into question the results of France’s economic policy”.