The credit rating agency S&P has maintained France’s “AA-” rating, recognizing the government’s efforts to reduce the public deficit. However, ongoing political uncertainty and heated budget debates in the National Assembly could threaten this progress.
On Friday, November 29, S&P reaffirmed France’s “AA-” rating and kept its outlook stable, highlighting the government’s initiatives to bring down the public deficit, despite the political instability affecting the country.
This decision, eagerly anticipated, comes at a critical time for the French government, which is navigating a political and fiscal crisis while making significant concessions to secure approval for its 2025 budget.
“Despite the political uncertainty, we expect France to comply—albeit with delays—with the European fiscal framework and gradually consolidate its public finances over the medium term,” the agency stated in a press release, emphasizing the “open” and “diversified” nature of the French economy.
Risks Linked to Political Uncertainty
While a stable outlook suggests that the rating is unlikely to change in the near term, S&P warned that a downgrade could occur if the government fails to significantly reduce its substantial public deficit or if economic growth falls below projections for an extended period.
French Economy Minister Antoine Armand welcomed S&P’s decision, viewing it as a sign of confidence in the government’s ability to address the deficit and restore public finances. However, he also acknowledged the risks posed by political uncertainty, which, according to him, could jeopardize this trajectory.
Faced with a minority position in parliament, the government has been making numerous compromises to avoid a potential vote of no confidence, which could arise as early as next week during debates on the Social Security budget if the controversial Article 49.3 is used to bypass a parliamentary vote.
Recent concessions include backing down on pension reforms and employer contribution measures. Additionally, the government agreed not to increase electricity taxes beyond pre-price cap levels to appease the National Rally party, which has threatened to ally with left-wing factions to oust the administration.
Nonetheless, the risk remains high. Marine Le Pen, leader of the National Rally, showed no signs on Friday of withdrawing her support for a no-confidence motion against the government next week.
Moody’s Warning in October
In May, S&P downgraded France’s credit rating from “AA” to “AA-,” equivalent to a score of 17 on a 20-point scale. In October, the other two major rating agencies, Moody’s and Fitch, issued warnings by lowering France’s outlook to negative.
Despite concessions on the budget, initially designed to achieve $62.580 billion (€60 billion) in savings by 2025, Prime Minister Michel Barnier has committed to keeping the public deficit around 5% of GDP, following an anticipated increase to 6.1% in 2024. The government aims to bring the deficit back below the EU ceiling of 3% by 2029, a trajectory recently validated by the European Commission.
France’s national debt, standing at 112% of GDP ($3.37 (€3.23) trillion as of late June), is projected to begin a slow decline only from 2028.
In its analysis, S&P noted “several structural improvements” in the French economy over recent years, particularly in areas such as competitiveness and employment. The agency estimates that the measures outlined in the government’s budget plan could reduce the deficit by just under one percentage point of GDP.
However, S&P also highlighted the “considerable risk” that these measures might be watered down further, adding that beyond 2025, the fiscal trajectory remains uncertain.