Debt: after Fitch, the Scope agency lowers the outlook for France

“We are in a position to p structural reforms for the country,” ured the Minister of the Economy after the Fitch agency downgraded France’s rating at the end of April. But Bruno Le Maire did not convince either the European rating agency Scope which, for its part, lowered the outlook for France on Friday, which means that its rating could be downgraded in the future, like the agency Fitch.

Scope explains its decision in a statement by the risk of “the weakening of public finances” in particular because of difficulties in “the implementation of reforms”. This action means that it could downgrade France’s rating, currently at “AA” or the third highest level on its grid, “within 12 to 18 months”.

Among the risks weighing on French finances, the agency notes that ” the economic dynamic has slowed down markedly in the second half of 2022”. She is also unconvinced of the trajectory of reducing the public deficit and debt, due to a “poor track record in terms of fiscal consolidation, a growing debt interest burden and risks linked to implementation of the reform program”. These risks are linked to “the absence of a majority in Parliament” and to “socio-political disputes”, citing in particular protests against the pension reform.

Impacts on interest rates

At the end of April, the rating agency Fitch, one of the three largest in the world, downgraded France’s rating, due to the risk posed by “the political impe and the social movements (sometimes violent)” on the reforms desired by Emmanuel Macron. A week earlier, the Moody’s agency had not made a rating. The S&P Global agency, which currently gives France an “AA” rating with a negative outlook, is due to publish its findings on June 2.

The rating of these agencies has repercussions on the interest rate at which investors lend money to France. On the 10-year loan, the benchmark maturity, the rate was 3.11% on Friday, close to its highest levels of the year. Bond rates have risen sharply for a year and a half, due to the policy of central banks implemented to try to control inflation.

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