The international rating agency “Fitch“ maintained its assessment of France's public debt at A+, but lowered the outlook from “stable“ to “negative“. The decision was motivated by weaker economic growth, the new deterioration of the budget situation and the increase in yields on French government bonds.
The A+ rating corresponds to the medium-high debt quality category. According to “Fitch“ However, these factors make it difficult to carry out the sustained fiscal consolidation needed to curb the upward trend in public debt.
Higher debt service costs
French government bond yields have risen significantly since the agency's previous review in late August. “Fitch“ notes that the increase was stronger than that of most comparable countries, which, according to the agency, indicates France's greater sensitivity to changes in financial market confidence.
The interest rate on ten-year French government bonds reached 4.97%, compared to 4.91% a day earlier. In the previous week, it also crossed the symbolic 5% mark.
The agency also links the pressure on French finances to political fragmentation and the complex social situation in the country. They increase the government's difficulty in pursuing a sustained deficit-reduction policy.
The economy shrank in the third quarter
French gross domestic product fell by 0.1% in the third quarter after stagnating in the second. A contraction was also reported in the first quarter, increasing pressure on the government to meet its budget targets amid weaker economic activity.
“The French economy is stagnant“, said Economy Minister Roland Lescure after the GDP data was released.
According to him, “Fitch“s decision confirms “the absolute need to adopt a responsible budget by the end of the year“, aimed at restoring the stability of public finances by reducing the budget deficit to 5%. Lescure added that the government will continue on the path of budget consolidation.
Economic fundamentals remain supportive of the rating
Despite the downgraded outlook, “Fitch“ did not change France's rating itself. The agency cites as its main pillars the size, wealth and diversification of the French economy, the stability of institutions, membership in the eurozone and the resilience of the banking sector.
In its previous assessment at the end of August, “Fitch“ had maintained both the A+ rating and the stable outlook, defining the French economy as sustainable. Since then, however, the agency has reported a deterioration in the dynamics of government debt and greater difficulties in budget stabilization.
Sources: bta.bg, afp.com