PARIS (Reuters) – The rating agency S&P Global Ratings lowered France’s long-term credit rating from “AA” to “AA-” on Friday, giving it a stable outlook, due to a clear deterioration of public accounts.

This is the second time in just over a year that one of the three major rating agencies has lowered France’s credit rating, after Fitch Ratings in April 2023.

The two agencies Fitch and Moody’s maintained their credit rating for France last month at “AA-” and “Aa2” respectively.

“Contrary to our previous forecasts, we expect that public debt will increase to around 112% of GDP (gross domestic product) by 2027 compared to around 109% in 2023,” explains S&P Global Ratings in a note, recalling that the public deficit of France reached 5.5% of GDP last year, well beyond the forecast of 4.9% initially put forward by the government, due to tax revenues significantly lower than expected.

“Even if we anticipate that the resumption of growth and the economic and budgetary reforms recently implemented will allow France to reduce its deficit, we now expect that the latter will remain above 3% of GDP in 2027,” adds the rating agency.

Bercy now plans to reduce the public deficit to 5.1% of GDP this year and 4.1% next year, and to return below 3% of GDP by 2027.

But these estimates are based on tens of billions of euros of partly committed budget cuts that the Court of Auditors and the International Monetary Fund are asking to see detailed in order to judge their credibility. The IMF recently estimated that the French budget deficit would reach 4.5% of GDP in 2027.

“WE SAVED THE FRENCH ECONOMY”

Reacting to the S&P decision, Minister of Economy and Finance Bruno Le Maire once again reiterated the government objective of a public deficit of less than 3% of GDP in 2027.

“Our strategy remains the same: reindustrialize, achieve full employment and maintain our trajectory to return below the 3% deficit in 2027,” he said in an interview with Le Parisien/Aujourd’hui en France.

The verdict of the rating agencies is particularly scrutinized because of its political resonances for the French government, faced with painful choices to reduce the public deficit in the run-up to the European elections on June 9, which promise to be perilous for the majority of ‘Emmanuel Macron.

“The main reason for this deterioration is that we saved the French economy,” said Bruno Le Maire, citing the expenses incurred to support growth and protect businesses in the face of the Covid crisis and the inflationary crisis.

“There will be no impact on the daily lives of the French. Let’s take the proper measure of this decision. We remain at a very good rating level. It’s as if we had gone from 18 to 17 out of 20! Our debt easily finds buyers on the markets”, however underlined Bruno Le Maire.

In its rating, S&P gives a stable outlook to France’s rating now – it was previously negative – which “reflects the fact that we expect real economic growth to accelerate and support the government’s fiscal consolidation efforts, not sufficiently however, to reduce an already high debt-to-GDP ratio.

(Jean-Stéphane Brosse, with contributions from Blandine Hénault and Leigh Thomas)

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