The rating agency Moody’s has maintained France’s sovereign rating, while issuing a warning about the risk of deteriorating economic conditions. This is the third warning France has received in a month.
Moody’s Maintains Rating but Changes Outlook
Following Fitch and S&P, it was Moody’s turn to update France’s sovereign rating. It maintained the rating at the fourth tier (AA3) but changed its outlook from “stable” to “negative.”
Moody’s highlights France’s political situation and warns about delays in passing the 2026 budget. According to analysts, this situation significantly weakens France’s economic outlook:
Political instability risks hampering the government’s ability to address major policy challenges, such as the high budget deficit, rising debt, and a sustained increase in borrowing costs.
Moody’s also points to the suspension of pension reform, which it deems detrimental to the economy in the long term:
[The suspension] could exacerbate the government’s fiscal difficulties and negatively affect the economy’s potential growth rate by reducing the labor supply.
Third warning from credit rating agencies
Credit rating agencies, which assess a country’s ability to repay its debt, regularly assign a rating that measures the risk of default. France, until then a global model student, has gradually slipped in the rankings.
Within a month, the other rating agencies, S&P and Fitch, both downgraded France’s rating from AA- to A+, the fifth-highest rating that can be assigned. The political situation in France is cause for concern, at a time when the country appears unable to adopt a budget.
Economy Minister Roland Lescure responded to Moody’s assessment, emphasizing the importance of reaching a compromise in the National Assembly:
This decision underscores the absolute necessity of forging a collective path toward a budget compromise.
The National Assembly’s Powder Keg Amid Budget Demands
Without a majority, Prime Minister Sébastien Lecornu had taken a step toward the Socialist Party in recent weeks by announcing the suspension of pension reform. But the party is pressing its advantage: it is demanding the adoption of the Zuckman tax, threatening to bring down the government otherwise.
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The particularly precarious balance in which the government finds itself therefore makes it very difficult to pass a budget that would reduce the French deficit by December—a goal that Roland Lescure nevertheless reiterated:
The government remains committed to meeting the deficit target of 5.4% of GDP announced for 2025 and to pursuing an ambitious path to reduce the public deficit to below 3% of GDP by 2029, while sustaining growth.
