Investing.com -- On Friday, March 14, 2025, Fitch Ratings affirmed France’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ’AA-’ with a Negative Outlook. The rating reflects the country’s large and diversified economy, strong institutions, and a record of macro-financial stability. However, the negative outlook is due to fiscal risks from substantial deficits and increasing government debt levels.
Fitch estimated that France’s budget deficit widened to 6.0% of GDP in 2024, significantly exceeding the original target of 4.4% and more than double the ’AA’ median. The expenditure-to-GDP ratio increased to 57.4%, the highest among ’AA’ rated and eurozone sovereigns. The growth of expenditure was driven by inflation indexation on social spending, higher local government spending, and rising interest expenses.
The adopted 2025 budget outlines a more modest net fiscal consolidation effort compared to the Barnier government’s initial draft. The revised deficit target is 5.4% of GDP, up from the originally proposed 5.0%. Fitch projects that the deficit will narrow to 5.5% of GDP in 2025, primarily due to a weaker growth forecast for 2025 (0.6% vs 0.9%).
Fitch forecasts that deficits will remain sizeable at 5.6% of GDP in 2026 and 5.4% in 2027, given the lack of detail on medium-term fiscal consolidation and expected political challenges. Prime Minister Bayrou has indicated a willingness to revisit the pension reform to gain opposition support. However, significant rollbacks could undermine planned fiscal consolidation over the medium term.
The general government debt is forecasted to exceed 120% of GDP by the end of 2028, the second-highest of ’AA’ rated sovereigns and more than double the forecast ’AA’ median. France remains a key benchmark issuer in the eurozone alongside Germany, benefiting from access to deep and liquid capital markets, both domestically and internationally.
Political uncertainty has intensified in France following the 2024 snap elections and collapse of the Barnier government over the 2025 budget bill. The current centre-right coalition led by Prime Minister Bayrou lacks an absolute majority in a highly fragmented National Assembly, complicating economic and fiscal policy-making. New elections are anticipated in the second half of 2025.
Fitch has lowered its growth forecasts for 2025 to 0.6% from 1.2% and for 2026 to 0.9% from 1.3%. This is mainly due to the risks of rising international protectionism and weaker growth in Germany, France’s largest trading partner.
The French banking sector remains resilient, benefiting from diversified business profiles and conservative risk appetites. French bank profitability has been recently weaker than the European average due to a high proportion of fixed-rate loans and fast liability repricing in 2023-2024. However, it is expected to improve gradually in 2025 as new loans are repriced and funding costs decline.
France has an ESG Relevance Score (RS) of ’5[+]’ for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in Fitch’s proprietary Sovereign Rating Model. France has a high WBGI ranking at the 80th percentile, reflecting its long track record of stable and peaceful political transitions, strong institutional capacity, effective rule of law and a low level of corruption.
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