(Finance) – Scope Ratings downgraded France’s long-term outlook to “AA-” with Stable Outlook from AA Negative. The agency cites significant challenges related to growing public debtat political uncertainties and fiscal consolidation.
Scope analysts highlight how the “increasing fiscal and political pressure the country is facing, combined with rising budget deficits and public debt, makes it difficult to rapidly reduce debt and improve economic growth.”
The country’s economic stability “is however supported by a diversified economic structure and a solid banking sector, even if the fiscal framework remains precarious”.
The key points of the report
Growing fiscal deficit: France’s budget deficit reached 5.5% of GDP in 2023 and is expected to rise further to 6.1% in 2024. This far exceeds the initial government target of 5.1%. Although the government has introduced a fiscal consolidation plan of around 60 billion euros (equal to 2% of GDP) for 2025, the effectiveness of this plan is uncertain due to political fragmentation and the difficulty of implementing spending cuts or tax increases.
Growing public debt: The trajectory of public debt remains a major concern: the debt-to-GDP ratio was at 109.9% in 2023 and is expected to reach 119% by 2029, with very gradual fiscal consolidation and uncertainties related to GDP growth and to the actual realization of spending reductions?.
Political uncertainty: The 2024 early legislative elections have accentuated the fragmentation of the French parliament, complicating the implementation of the fiscal consolidation plan and structural reforms needed to strengthen economic growth. Will political polarization and opposition within parliament make it difficult to reduce public spending or implement growth-enhancing policies before the 2027 presidential elections?
Economic resilience: Despite fiscal and political challenges, France benefits from a diversified and robust economy, with a high level of GDP per capita and an economic structure that includes high value-added sectors. Furthermore, the country’s banking system stands out for its high level of capitalization and strong liquidity, which offers some protection against possible external economic shocks. Does this help offset economic difficulties and help keep the country’s credit rating stable?.
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