Bankinter | Moody’s maintained its rating at Aa3 but downgraded the outlook from stable to negative. The rating is based on a “rich and diversified” economy that benefits from a “more benign demographic profile than many other advanced economies.” “The strength of household and corporate balance sheets, as well as a solid banking sector, contribute to macroeconomic stability and the economy’s ability to absorb shocks.” However, it notes that “political instability” may make it difficult to address important challenges, such as “the high fiscal deficit, the rising debt burden, and the lasting increase in financing costs,” which would lead to “a faster weakening of France’s key fiscal indicators than we expect.” In addition, it points to “the risk of a lasting reversal” of structural reforms, “particularly the 2023 pension reform.” “If the suspension of this reform extends beyond a few years, it will exacerbate the government’s fiscal challenges and negatively impact the economy’s potential growth rate.”
Analysis team’s view: Unlike Fitch (on September 12) and S&P (on October 17), which both downgraded France’s rating to A+ with a stable outlook (from AA-), Moody’s is the only one of the three agencies to remain in the Aa3 range, although it warns of the risks with the downgrade of the outlook. A downgrade would come, among other things, from “further evidence that the capacity of institutions” to address challenges “has been permanently weakened.” Lecornu’s new government has begun debating the 2026 budget. The government’s goal is to keep the deficit at -5.4% of GDP in 2025 (after -5.8% in 2024) and below -3% in 2029.
