French Finance Minister Responds to Fitch's Decision
French Finance Minister Bruno Le Maire argued that Fitch underestimated the government's reform plans' positive impacts. He reiterated France's dedication to reducing its debts.
France's Economic Growth Forecasted at 0.8%
Fitch revised France's outlook from negative to stable and predicted the euro zone's second-largest economy would grow by 0.8% this year. This rate aligns with the eurozone average but falls below Fitch's previous 1.1% forecast in November.
Social and Political Pressures Complicate Fiscal Consolidation
The global credit rating agency noted that protests against pension reform would make fiscal consolidation more challenging in France.
French Economy Grows Despite Strikes, High Inflation Persists
In Q1, the French economy grew by 0.2% amid strikes against the government's pension bill. However, inflation remained high.
Fitch Forecasts Easing Inflationary Pressures in 2023
Fitch expects inflationary pressures in France to ease in the second half of 2023, with average inflation at 5.5% in 2023 before dropping to 2.9% in 2024.
Inflation Rises Due to Higher Energy Prices
France's inflation increased to 5.9% year-on-year in April, up from 5.7% in March. The country's statistics agency INSEE attributed the rise partially to higher energy prices.
LATEST: Fitch Ratings has downgraded France's credit rating to 'AA-', with a stable outlook.
— Paryte (@Parytecom) April 29, 2023
France's Fiscal Metrics Weaker than Peers
Fitch stated that France's fiscal metrics lagged behind its peers. The agency expects the government debt/GDP ratio to exhibit a slight upward trend due to large fiscal deficits and minimal progress on fiscal consolidation.
France's Debt Burden Expected to Ease by 2027
Earlier this month, Le Maire anticipated that France's national debt burden would decrease from 111.6% of economic output in 2022 to 108.3% by 2027.
High Debt Servicing Costs for France
Currently, France faces significant debt servicing costs, borrowing at approximately 3% compared to 1% a year ago. French Budget Minister Gabriel Attal warned that by 2027, debt servicing could become the country's largest budget expenditure item.
