PARIS (Reuters) -Credit ratings agency Moody’s on Friday maintained France’s rating, but revised its outlook to “negative” from “stable”, citing increased risks from political fragmentation that could hamper the country’s ability to tame its deficit.
Moody’s decision not to downgrade France, keeping its long-term foreign currency sovereign credit rating at Aa3, will be a relief for the French government after downgrades by Fitch, DBRS and S&P Global, all within just over a month.
Finance Minister Roland Lescure said in a statement that Moody’s decision “reflects the absolute necessity of building a collective path toward a budgetary compromise.”
“The government remains determined to meet the target of a 5.4% of GDP deficit in 2025 and to continue on an ambitious trajectory of reducing the public deficit to return below 3% of GDP by 2029, while preserving growth,” Lescure said.
Still, Moody’s comments were sobering.
The government’s decision to postpone a landmark pension reform until 2028 could “exacerbate the government’s fiscal challenges and negatively impact the economy’s potential growth rate by reducing the labour supply,” it said.
“France has highly competent public institutions, although the strength of the institutional framework is being tested in the context of an increasingly challenging domestic political backdrop,” it added.
French Prime Minister Sebastien Lecornu was forced to mothball the pension reform to win crucial support from the left, which had been threatening to oust his weak minority government.
After winning that concession, the Socialists on Friday threatened to once again topple the government by Monday if a billionaires tax is not included in the 2026 budget.
The threat of more instability is worrying for France’s economy, with French business activity declining more quickly than expected in October, according to data released on Friday.
(Reporting by Aatrayee Chatterjee in Bengaluru and Gabriel Stargardter in Paris; Editing by Anil D’Silva and Will Dunham)
