Moody's downgrades France's ratings to Aa3, changes outlook to stable

The rating agency also downgraded to Aa3 from Aa2 the backed foreign-currency and local-currency long-term issuer ratings and changed the outlook to stable from negative.

The Société de prise de participations de l'État’s (SPPE) backed foreign-currency and local-currency short-term issuer and backed local-currency commercial paper ratings have been affirmed at P-1.

The decision to downgrade France's ratings to Aa3 reflects Moody Ratings’ view that the country's public finances will be substantially weakened over the coming years. This is because political fragmentation is more likely to impede meaningful fiscal consolidation, departing from the baseline scenario underpinning our October 2024 rating action.

On December 4, the successful no-confidence vote from the National Assembly in the context of the 2025 social security bill prompted the government to resign.

Moody’s Ratings expects the newly-appointed government to push through a special law ensuring the continuity of the public administration in 2025. However, looking ahead, there is now very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year, it said in a release.

As a result, Moody’s forecasts that France's public finances will be materially weaker over the next three years compared to its October 2024 baseline scenario.

In parallel, while risk premia have narrowed again in recent weeks, there is a risk of a durable increase in financing costs which would further weaken debt affordability. This could create a negative feedback loop between higher deficits, a higher debt load and higher financing costs, against the backdrop of significant annual borrowing needs, Moody’s added.

ALCHEMPro News Desk (DS)