France's Credit Outlook Revised by Moody's

PARIS (Reuters) – Credit ratings agency Moody's (NYSE:MCO) revised France's outlook to "negative" from "stable" on Friday, citing growing uncertainty regarding the country's ability to manage increasing budget deficits, while maintaining its debt rating at Aa2.

Moody's decision to keep the French debt rating intact offers some relief to policymakers, as a downgrade was anticipated. Nevertheless, the negative outlook highlights rising international concerns regarding France's public finances, particularly as a tightening 2025 budget bill is under review in parliament.

In response to Moody's announcement, French Finance Minister Antoine Armand stated that the government is committed to restoring public finances. At a press conference during the International Monetary Fund and World Bank meetings in Washington, he emphasized that reducing the public deficit to 5% of GDP by 2025, down from the current 6.1%, is the top fiscal priority.

"We acknowledged the prospect of the negative outlook and have proactively taken necessary measures to control debt," he remarked.

Increasing pressure is mounting on Prime Minister Michel Barnier due to a spiraling fiscal deficit as expenditures surpass tax revenues.

This month, Barnier introduced France's 2025 budget, which proposes 60 billion euros in spending cuts and tax increases, primarily affecting large corporations.

Moody's expressed that the observed fiscal deterioration has surpassed expectations and contrasts with governments in similarly rated nations. It raised alarms regarding the country's worsening debt affordability compared to peers and noted that the turbulent political landscape poses risks to the institutions' ability to achieve consistent deficit reductions.

However, Moody's concluded that France's Aa2 rating reflects the country's substantial and diverse economy. The agency acknowledged the competence of France's public institutions and recognized the willingness of previous governments to implement economic reforms.

Fitch had also downgraded France's outlook to "negative" from "stable" earlier in October, driven by fears of widening deficits and a complex political scenario that hinders the government's ability to stabilize finances.