France's Credit Rating Stability Masks Deepening Political and Fiscal Challenges

Moody's has maintained France's sovereign credit rating at Aa3 but downgraded the outlook from stable to negative, signaling growing concerns about the nation's political fragmentation and fiscal outlook. This decision was announced on October 24, 2025, amidst France's ongoing budget negotiations and follows recent downgrades by Fitch, DBRS, and S&P Global. The French government aims to reduce its public deficit to 5.4% of GDP by 2025 and further below 3% by 2029 despite headwinds.

Finance Minister Roland Lescure emphasized the importance of a budgetary compromise, warning that the current political fragmentation poses significant risks to managing the deficit effectively. Moody's pointed to the postponement of a major pension reform until 2028—which was delayed to secure leftist support—as a factor exacerbating fiscal pressures and potentially curbing economic growth by limiting labor supply. This delay, combined with threats from the Socialist Party to topple the government if a billionaire tax is not included in the 2026 budget, illustrates the fragile political environment.

Economic growth is projected modestly at 0.7% for 2025 and 1% for 2026. Meanwhile, business activity has been declining faster than expected. Public debt currently stands near €3.5 trillion, further intensifying fiscal concerns. Moody's cited weakening institutional governance and risks from political fragmentation as core drivers behind the negative outlook, underscoring challenges in securing durable parliamentary majorities.

The political backdrop compounds these fiscal difficulties. Since the snap elections of July 2024 resulted in a hung parliament, President Emmanuel Macron's popularity has plummeted to around 20%. Public sentiment is grim, with 90% of citizens believing France is in decline amid corruption scandals, social unrest, and increasing support for the far-right National Rally led by Marine Le Pen. Though the country continues to demonstrate resilience in the face of crises, the current deep divisions threaten political stability at a critical fiscal juncture.

Overall, Moody's verdict reflects that while France's creditworthiness remains high, the outlook is clouded by political discord and economic uncertainties, making effective governance and fiscal discipline increasingly challenging in the near term.