Moody’s lowers France’s outlook on budget fears, maintains rating

PARIS (Reuters) -Credit ratings agency Moody’s (NYSE:MCO) revised France’s outlook to “negative” from “stable” on Friday, over mounting uncertainty that the country will be able to curb widening budget deficits, but maintained its rating on French debt at Aa2.

Moody’s decision not to cut its rating on French debt is a relief for policymakers, as a downgrade was widely seen as possible. However, the downward revision of the French outlook underlines growing international concerns about the country’s public finances, and comes as a belt-tightening 2025 budget bill is being discussed in parliament.

In a statement after the decision, French Finance Minister Antoine Armand said the French government would act to restore its public finances. At a press conference on the sidelines of International Monetary Fund and World Bank annual meetings in Washington, he said France’s top fiscal priority is to reduce its public deficit to 5% of GDP in 2025, from 6.1% currently.

“We noted the prospect of the negative outlook. We didn’t wait for the negative outlook to take the necessary measures,” to control debt, he said.

A spiraling fiscal deficit as spending exceeds tax revenues has put increasing pressure on Prime Minister Michel Barnier to act.

This month, Barnier presented France’s 2025 budget, which includes 60 billion euros’ worth of spending cuts and tax hikes, mostly targeting big companies.

“The fiscal deterioration that we have already seen is beyond our expectations and stands in contrast with governments in similarly rated countries,” Moody’s said.

It also raised concerns over the country’s deteriorating debt affordability relative to its peers and added that the turbulent political situation raises risks about the institutions’ ability to deliver sustained deficit reductions.

Still, it said its decision to maintain the Aa2 rating reflected France’s large and diversified economy.

Moody’s added that France’s public institutions are competent and previous governments have shown willingness to reform the economy.

Fitch cut France’s outlook to “negative” from “stable” in mid-October on fears of widening deficits and a complicated political backdrop hampering the government’s ability to shore up its finances.