Fitch Ratings downgrades France's IDR to 'A+'; outlook stable

The country’s general government debt ratio will continue to rise, reflecting persistent primary fiscal deficits. Fitch projects debt to increase to 121 per cent of gross domestic product (GDP) in 2027 from 113.2 per cent in 2024, without a clear horizon for debt stabilisation in subsequent years.

France's 2024 debt ratio, already double the 'A' category median, was 15 percentage points (pp) above its 2019 level and is now the third highest among sovereigns in the 'A' and 'AA' rating categories.

France's rising public debt constrains the capacity to respond to new shocks without further deterioration of public finances, Fitch Ratings said in a note.

Political instability weakens the government’s capacity to deliver substantial fiscal consolidation and makes it unlikely that the headline fiscal deficit will be brought down to 3 per cent of GDP by 2029, as targeted by the outgoing government.

“We expect the run-up to the presidential election in 2027 will further limit the scope for fiscal consolidation in the near term and see a high likelihood that the political deadlock continues beyond the election,” the rating agency said.

France also has a weak record of fiscal consolidation and compliance with European Union (EU) fiscal regulations.

The 2025 budget targets a fiscal adjustment of 0.7 per cent of GDP, of which more than half derives from temporary revenue-raising measures, including exceptional levies on large corporations and high net-worth individuals.

Fitch Ratings projects a 2025 fiscal deficit of 5.5 per cent of GDP, close to the government's 5.4 per cent target, and down from an outcome of 5.8 per cent of GDP in 2024. However, the 2025 figure remains high compared with the projected eurozone median deficit of 2.7 per cent and 'A' median of 2.9 per cent.

Fitch forecasts France's fiscal deficits will remain above 5.0 per cent of GDP in 2026-2027.

The high tax burden and high share of structural spending make sustained fiscal consolidation challenging. France's tax-to-GDP ratio is the highest in the EU at 45.6 per cent of GDP compared with an EU average of 40 per cent, leaving limited scope to raise taxes further.

Efforts to curb social expenditure through structural reform over the past decade have had limited results and faced substantial political and social opposition, Fitch added.

ALCHEMPro News Desk (DS)