Rating agency Fitch Ratings downgrades France's debt outlook

The rating agency Fitch Ratings maintained France's sovereign debt rating at A+ on Friday but downgraded the outlook from stable to negative, noting a "deterioration" in the budgetary situation and borrowing rates. “Weaker growth, further budgetary deterioration and higher yields have increased the difficulty of carrying out the sustained budgetary consolidation necessary to halt the trajectory of deterioration of France's debt,” the agency wrote in a press release, specifying that it was maintaining the rating at A+ (higher average quality debt).

The cost of French borrowing has soared in recent weeks under the weight of concerns about the sustainability of its debt and the political and social divisions which are splitting the country.

“This assessment confirms the absolute necessity of adopting a responsible budget by the end of the year, which aims to restore the public accounts by reducing our deficit to 5%,” reacted the Minister of the Economy Roland Lescure in a press release, indicating that “the government is determined to continue on a trajectory of budgetary consolidation.”

Earlier in the day Thursday, Roland Lescure had also admitted that "the French economy (was) at a standstill", following the publication of GDP figures for the third quarter, down 0.1%, after stagnation in the second quarter and already a decline in the first quarter.

The previous rating from Fitch Ratings took place at the end of August. The agency then maintained its rating and outlook, citing a “resilient” French economy. But since then, there has been a “deterioration in debt dynamics,” notes Fitch Ratings. “Yields on French government bonds have increased significantly since our last review, in the broader context of market repricing, but much more sharply than for most peers, indicating increased sensitivity to variations in market confidence,” explains the agency. On the debt market, the interest rate on the ten-year French bond ended at 4.97% on Friday, compared to 4.91% the day before.

Last week, it exceeded the symbolic threshold of 5%. “Persistent political fragmentation and a difficult social context increase the complexity of implementing sustained fiscal consolidation,” estimates Fitch Ratings. However, “France's rating remains supported by the size, wealth and diversification of its economy, the solidity of its institutions, its membership of the euro zone and the resilience of its banking sector,” adds the rating agency.

Machine-translated from French