A class council would say that France must do better, but without going so far as to issue a warning. The influential rating agency S&P Global Ratings “has decided to maintain” France’s debt rating, the Minister of the Economy Bruno Le Maire rejoiced on Friday evening, but this rating remains under negative outlook making it run the risk of further deterioration.
S&P closes the autumn reviews of the major rating agencies for France. 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. On Friday, this sword did not fall on French public finances, despite a context of high interest rates.
“Positive signal”, according to Jean-René Cazeneuve
S&P indicates on Friday that it anticipates “a reduction in public debt as a percentage of GDP from 2025, although very gradually”, and estimates that “the pass-on 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 the implementation of policies.
“More than ever, we remain determined to reduce public spending and accelerate France’s debt reduction,” responded Bruno Le Maire on X (ex Twitter), judging that it was “about our independence and respect for 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, 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 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 objective 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 Mayor is currently putting forward proposals to ensure full employment and reduce public spending, such as lowering 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”.