Fitch agency cuts France’s debt rating to 'AA-', revises up outlook to stable

"Social and political pressures illustrated by the protests against the pension reform will complicate fiscal consolidation," the global credit ratings agency said.

Fitch, which also revised up the country's outlook to stable from negative, said the French economy will expand by 0.8% this year, in line with the euro zone average but below the agency's 1.1% growth forecast in its last review in November.

The economy trudged up slightly in the first quarter despite a series of strikes against the government's pension reform bill, but inflation remained stubbornly high.

Fitch forecast that inflationary pressures will ease during the second half of 2023 due to base effects and that inflation will average at 5.5% in 2023, before falling to 2.9% in 2024.

The euro zone's second-largest economy saw its inflation rise to 5.9% year-on-year in April from 5.7% in March. Statistics agency INSEE attributed the increase in inflation partly on higher energ prices.

Uncertainty surrounding the revenue trajectory remains high as the recent strong performance could be at least partially driven by temporary factors, including the economic rebound and high inflation, added the agency.

The ratings agency added that the country's fiscal metrics are weaker than its peers and it expects general government debt/GDP to remain on a modest upward trend, reflecting relatively large fiscal deficits and only modest progress with fiscal consolidation.

France faces a high debt servicing cost at the moment, with the country borrowing at about 3% from 1% a year ago. On Friday, French Budget Minister Gabriel Attal said that by 2027 the cost of servicing the country's debt could be its biggest budget-spending item.

(Reuters)

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