Standard & Poor’s (S&P) announced on May 31st that it was downgrading France’s credit rating from “AA” to “AA-“, citing the “deterioration of the country’s budgetary position.” This decision was based on France’s higher-than-expected budget deficit in 2023, with S&P expecting the deficit to remain above 3% of GDP until 2027. S&P has been rating France since 1975 and has only downgraded its assessment twice before. This is the first agency to strip France of its prestigious “triple A” rating in 2012, which is reserved for those countries with excellent financial management.
French Finance Minister Bruno Le Maire reassured the public that this downgrade would not have any impact on their daily lives, stating that the government’s strategy remains unchanged. He emphasized the importance of revitalizing the economy, achieving full employment, and meeting the target of reducing the deficit below 3% by 2027. Le Maire attributed the downgrade to the government’s efforts to save the French economy during the global crisis, highlighting the sacrifices made to protect the country’s financial stability.
In S&P’s previous analysis of the French economy in December, they had warned that France could face a downgrade if it did not address its deficits quickly enough to reduce its debt, or if borrowing costs exceeded 5% of public revenue. Despite being rated similarly to Belgium and the UK, France recorded higher levels of debt and public deficits compared to its neighbors last year. It now joins countries like Estonia and the Czech Republic in the “AA-” rating category, still higher than Spain according to the three major rating agencies.
While S&P downgraded France, Moody’s and Fitch have maintained their ratings for the country at “Aa2” and “AA-“, respectively, in April. This shows that there are varying opinions among international agencies regarding France’s creditworthiness. Spain, which has a slightly lower debt level and a declining trajectory due to strong economic growth, is rated lower than France by the three main agencies. The differing ratings reflect the complex nature of assessing a country’s financial health and stability in the global market.
In conclusion, France’s credit rating downgrade by S&P highlights the challenges the country faces in managing its budget deficit and debt levels amidst global economic uncertainties. The government’s commitment to its economic strategy and goals will be crucial in restoring confidence in France’s financial stability and attracting investment in the future. As the country navigates these challenges, it will be important for policymakers to address fiscal concerns and implement reforms to ensure sustainable economic growth.
