Moody's Downgrades France's Outlook to Negative

Today, leading credit rating agency Moody's downgraded France's financial outlook from "stable" to "negative." This revision came in response to concerns about the country's ability to address rising budget deficits. The French government, led by Prime Minister Michel Barnier, is under pressure to take measures to reduce the escalating fiscal deficit, which continues to exceed government spending relative to tax revenues.

Last week, Prime Minister Barnier announced the 2025 budget proposal currently awaiting approval. The proposed budget includes approximately €60 billion in spending cuts and tax increases primarily affecting large corporations. This move is part of the country’s effort to reduce its significant budget deficit.

The government's fiscal strategy aims to lower the public deficit to 5% of GDP next year, down from the current 6.1%. This target is being considered alongside the expected economic growth of 1.1% for both this year and next.

Moody's expressed concerns over fiscal deterioration that exceeds expectations, emphasizing that this trend differentiates France's financial performance from that of other governments with similar credit ratings. Despite the negative outlook, Moody's maintained France's government credit rating at "Aa2."

The agency also pointed out issues related to debt affordability compared to other countries and the current tumultuous political climate in France. These factors contribute to perceived risks regarding the ability of institutions to achieve consistent deficit reductions.

Moody's adjustment followed a similar decision earlier this month by another rating agency, Fitch, which downgraded France's outlook to "negative" in mid-October. Fitch's decision was based on similar concerns regarding widening deficits and a complex political situation that could hinder the government's fiscal consolidation efforts.