Fitch revises France's rating outlook to 'negative'
Fitch has affirmed France's rating at A+ but changed its outlook from 'stable' to 'negative'. The agency cited weak growth, expensive borrowing, and a high deficit.
Fitch has maintained France's sovereign rating at A+ but downgraded its outlook to 'negative'. According to the agency, the country's prospects have worsened due to an economic slowdown, rising borrowing costs, and a larger deficit than anticipated in its previous forecast from August of last year.
The decision was published following data from France's statistical institute, INSEE, showing a 0.1% contraction in GDP in the third quarter. The economy showed no growth in the previous quarter and had declined in the first quarter. Fitch also linked risks to public finances with persistent political fragmentation and a challenging social environment, including mass protests. The agency believes these factors complicate consistent deficit reduction.
Nevertheless, the rating is supported by the large size and diversified structure of the French economy, its high level of prosperity, the resilience of state institutions, its membership in the eurozone, and the stability of the banking sector.
The French government expects to adopt a 'responsible' budget for 2027. Economy and Finance Minister Roland Lescure stated that he had taken note of Fitch's decision and sees it as confirmation of the need to approve the budget by the end of the year. The document, he said, should restore the sustainability of public finances and reduce the deficit to 5%. The ministry intends to continue its fiscal consolidation course to provide greater predictability for economic participants amid international uncertainty.
Earlier, Lescure, commenting on GDP data, described the French economy as 'stalled'. He warned that the country would face serious problems if the budget plan was not adopted and emphasized the need to keep the deficit at 5% or below.
Approval of the budget through a regular vote remains uncertain: the government lacks a majority in the National Assembly, and presidential elections are approaching. According to Fitch, political discussions taking place roughly six months before the vote have not significantly increased confidence that the deficit can be sustainably reduced and public debt stabilized.
Agency analysts believe the government will likely seek to pass the budget using constitutional mechanisms despite the lack of a parliamentary majority. In the event of a deadlock, Lescure has not ruled out invoking Article 49.3 of the Constitution, which allows a bill to be adopted without a vote if parliament does not support a motion of no confidence in the government.
Another option is the use of ordinances, meaning the adoption of measures by the executive branch through a special procedure. This mechanism has not been used for budget approval since the establishment of the Fifth Republic. Fitch expects the government may resort to such tools if the parliamentary process reaches an impasse.
Jérôme Mathis, a professor of economics at Paris Dauphine University, believes that a budget adopted via ordinances could reduce uncertainty in the short term but will not solve the long-term issue of confidence in fiscal policy. In his view, markets typically prefer a contentious decision to a prolonged absence of one.
However, the positive effect on investor confidence may be limited if such a budget is perceived as weak, temporary, or subject to revision after the presidential elections. Market assessments may also be influenced by the perception that France's political system is unable to form a stable parliamentary majority for an extended period.
