Fitch Ratings Revises France Sovereign Credit Outlook to Negative Over Mounting Fiscal Deficit

Fitch Ratings revised the outlook on France's long-term foreign-currency issuer default rating from Stable to Negative on Friday evening, while affirming the eurozone's second-largest economy at 'AA-'. The decision arrived barely twenty-four hours after Prime Minister Michel Barnier's minority government presented a 2025 draft budget containing €60 billion ($65.6 billion) in spending cuts and targeted tax increases aimed at arresting a rapid deterioration in public finances.

In its sovereign review, Fitch highlighted that fiscal policy risks have risen sharply since its previous assessment in April. Weak tax revenues and higher-than-budgeted local government and social security expenditures have pushed the projected 2024 general government deficit to 6.1% of GDP—far above the 5.1% target set in the spring and more than double the European Union's 3.0% treaty threshold.

Fiscal Slippage Pushes 2024 Budget Deficit to 6.1% of GDP

Although Barnier's cabinet aims to narrow the budget shortfall to 5.0% of GDP in 2025 through €40 billion in expenditure reductions and €20 billion in temporary levies on large corporations, wealthy households, and energy utilities, Fitch expressed skepticism that those targets will be fully achieved. The credit agency forecasts that France's fiscal deficit will remain elevated at 5.4% of GDP in both 2025 and 2026, preventing the country from bringing its deficit below 3.0% by the government's 2029 deadline.

As a consequence of persistent primary deficits and rising debt-servicing costs, Fitch projects that France's general government debt-to-GDP ratio will climb steadily from 110.6% at the end of 2023 to 118.5% by 2028—nearly double the 61.3% median for 'AA'-rated sovereign peers. French 10-year OAT bond yields have already widened to roughly 78 basis points over German Bunds, hovering near levels paid by lower-rated eurozone peers.

“High political fragmentation and a minority government complicate France's ability to deliver sustainable fiscal consolidation policies as general government debt climbs toward 118.5 percent of GDP.” — Fitch Ratings Sovereign Review on the French Republic

Parliamentary Hurdles Confront Michel Barnier's €60 Billion Budget Plan

Fitch pointed directly to the fractured composition of the French National Assembly following the summer legislative elections, in which no political bloc won an absolute majority. Passing the 2025 finance bill will either require tough concessions to opposition parties or the invocation of Article 49.3 of the Constitution to bypass a parliamentary vote, a mechanism that exposes Barnier's cabinet to immediate no-confidence motions.

French Finance Minister Antoine Armand responded to the rating action by stating that the government's newly tabled 2025 budget directly addresses the structural imbalances identified by Fitch. Market attention now turns to upcoming sovereign reviews by Moody's Ratings on October 25 and S&P Global Ratings on November 29, after S&P already downgraded France from 'AA' to 'AA-' earlier this year.

Sources

• Fitch Ratings
• Ministère de l'Économie et des Finances