Debt: Standard&Poor’s agency maintains France’s rating, a “consistent” decision for Bruno Le Maire

It was a decision all at once expected and feared. The Standard&Poor’s (S&P) rating agency decided late this Friday evening to maintain the French debt rating. France’s AA rating is maintained. In its latest report, S&P igned a negative outlook to the French rating. Bercy, the headquarters of the Ministry of Economy and Finance, feared a deterioration synonymous with sanction against the government’s economic policy.

In a tweet published in the wake of the rating agency’s verdict, Bruno Le Maire, the Minister of the Economy obviously welcomed this decision which he considers to be “consistent with the government’s choices in terms of public finances”.

The Standard & Poor’s agency has decided to maintain France’s rating. This decision is consistent with the government’s choices in terms of public finances. More than ever, we remain determined to reduce public spending and accelerate debt reduction…

— Bruno Le Maire (@BrunoLeMaire) December 1, 2023

For its part, S&P indicates that it anticipates “a reduction in public debt as a percentage of GDP from 2025, albeit very gradually”, and estimates that “the repercussions of the increase in borrowing costs due to high interest rates will be progressive”. “We believe that our budgetary forecasts still contain significant risks which could, if they materialize, further reduce France’s budgetary flexibility,” notes the agency, citing for example “stricter financing conditions” or “ increased political fragmentation” which would complicate policy implementation.

S&P thus closes the autumn reviews of the major rating agencies for France. Moody’s has maintained its Aa2 rating. Fitch, for his part, maintained its AA-, after degrading France in April. In June, S&P warned of “risks” on the execution of budgetary objectives, and therefore on the capacity to reduce a debt of more than 3,000 billion euros, the annual repayment of which will become the first item of State expenditure in 2027, ahead of Education. The agency, with which Bercy communicates regularly, was particularly concerned that the absence of an absolute majority in Parliament would prevent the government from carrying out its economic texts.

Growth prospects revised downwards

“I think we have provided solid arguments on the credibility of our determination to reduce the debt, to bring deficits below 3%. (Editor’s note: by 2027) and to maintain public spending”, commented the Minister of Economy and Finance, Bruno Le Maire, Thursday on France Inter. “We are reducing public spending, we are reducing deficits and we are accelerating public debt reduction,” he insisted, promising to reach a 4.9% deficit by 2023. He also noted, last week on franceinfothat a deterioration of France would result in further throwing “billions of euros out the window” to pay debt interest which may still be increased by the markets.

Despite a contraction of 0.1% in French economic activity in the third quarter, Bruno Le Maire continues to expect growth of 1% this year, then 1.4% in 2024. In a context of the European economy in slowed down, the consensus of economists for France’s growth is only 0.8% for 2024, and was joined on Wednesday by the OECD (Organization for Economic Co-operation and Development), which still forecast 1.2 % in September.

The European Commission warned in November that France risks not being in line in 2024, and a somewhat glorious excessive deficit procedure could target the country in June. For the first president of the Court of Auditors, Pierre Moscovici, questioned about Europe 1, at a level of 109.7% of GDP (gross domestic product) forecast for next year, the debt constitutes a weight “which paralyzes public action”. However, he has “the feeling that the government has understood that it is necessary to make an additional effort”.

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