Moody's Places France's Sovereign Credit Rating on Negative Outlook Amid Political and Economic Challenges

Moody's has maintained France's sovereign credit rating at Aa3 but placed it under a negative outlook, citing political fragmentation and economic challenges as significant risks. Unlike Fitch and Standard & Poor's, which downgraded France's rating to A+ earlier this year, Moody's has kept its higher rating yet warned the outlook could lead to a downgrade without improvement. The agency highlighted the fragmentation within France's National Assembly as a major impediment to effective legislative functioning, particularly impacting the government's capacity to implement crucial fiscal reforms and manage the budget deficit.

France's government aims for a budget deficit of 5.4% of GDP by 2025, yet Moody's noted that without structural reforms, lowering the deficit below 3% by 2029 is highly uncertain. The IMF recently reduced its GDP growth forecast for France to just 0.7% in 2025, complicating deficit reduction and government revenue expectations. The suspension of pension reforms until 2028 contributes to political stability but carries rising costs, straining public finances further.

Despite these challenges, Moody's reassured that France's banking sector remains robust and that households and businesses retain solid financial health. The agency emphasized that France benefits from a rich and diversified economy but stressed the urgency of regaining legislative effectiveness to address fiscal pressures and debt sustainability.

French Economy Minister Roland Lescure acknowledged the need for a collective budget compromise to meet fiscal targets amidst these uncertainties. Moody's outlook reflects a cautious stance amid ongoing economic uncertainties and the country's complex political landscape, underscoring that failure to achieve progress may result in a future downgrade.