The spring verdicts from the rating agencies Moody’s and Fitch on French sovereign debt are expected Friday evening. And not in a great context. In February, the government had to lower expected growth this year from 1.4% to 1%, and announce that it had to urgently find 10 billion in savings in the state budget.
At the end of March, it was the National Institute of Statistics (Insee) which announced that the public deficit had slipped to 5.5% of GDP in 2023 instead of 4.9%. And as Bercy had to recognize that it would still be 5.1% this year, instead of 4.4%, various efforts of 10 billion euros must still be made until the end of the year.
Public spending proportionally falling
However, observe the economists of the Postal Bank, the unpleasant surprise comes more from “revenues lower than expectations by 21 billion euros” last year, than from expenses, which, for their part, “have been controlled: they are increasing of +3.7% after +4.0% in 2022”. As a proportion of GDP, observe these economists in their latest Rebond note, they “continue to decline and stand at 57.3% of GDP after 58.8% in 2022 and 59.6% in 2021”, while remaining at a level higher than pre-Covid.
The agencies are also concerned about the amount of debt, which exceeds 3,000 billion euros and now reaches 110.6% of French GDP. “French debt is 22 points of GDP above the euro zone average,” notes Rebond: “It is the third highest ratio in the EU, after Greece and Italy. »
Fitch downgraded France’s sovereign rating in April 2023, lowering it by one notch to AA-, with a “stable” outlook. This month, while deeming the deficit reduction targets put forward by the government by 2027 “unambitious and increasingly out of reach”, the agency indicated that it would not further lower the rating, barring “unlikely” further significant worsening of the debt.
Bad signals
Moody’s, which places France at Aa2 – a notch above Fitch – with a “stable” outlook, also considers “unlikely”, like the IMF or the High Council of Public Finances (HCFP), the hypothesis of a recovery in the public deficit below 3% of GDP in 2027, announced by the government to comply with Brussels obligations.
Will the agency lower its rating on Friday, or will it give the current rating a “negative” outlook? Moody’s already highlighted at the end of March “the risks” linked to “optimistic economic and revenue assumptions, as well as unprecedented reductions in spending”. The agency can choose, as it did in October, to let this half-yearly meeting pass without issuing an opinion. But “in light of” the latest comments made by Moody’s, Rebond points out, “the rating of French debt should be challenged from April”.
Bruno Le Maire wants to remain “serene” in the storm: “the agencies are doing their job, I am doing my job as Minister of Finance which consists of restoring the public accounts,” he said again on Wednesday on BFM Business. The minister will still have to face the verdict of the third agency, and the most watched, on May 31, nine days before the European elections. S&P currently rates France AA, equivalent to Moody’s Aa2, but its outlook is negative.