France: “ambitious” and “increasingly out of reach” deficit targets – 04/02/2024 5:53 pm

Without announcing a further downgrade of France’s sovereign rating, the French government’s deficit reduction targets are “ambitious” and “increasingly out of reach”, rating agency Fitch predicted on Tuesday.

In this comment, Fitch, which lowered the French rating from AA to AA with a stable outlook in April 2023 – the rating was confirmed in October – considers the fact that “any other negative rating action would depend on a more significant deterioration of public debt, Which we consider unlikely.Fitch is due to publish its new assessment of France on April 26.

In this commentary, Fitch nevertheless recalls that France’s public deficit was 5.5% of GDP in 2025, which is “largely higher” than the government’s projections (4.9%) and the agency’s estimate. Same (4.9% in October).

However, it notes that, “despite a larger-than-expected deficit, the public debt ratio has declined slightly, from 111.9% of GDP in 2022 to 110.6% last year”, “reflecting modest growth in solid GDP.”

According to Fitch, this level, “the second highest among sovereign states in the AA category”, should “gradually increase to reach around 113% of GDP by the end of 2025”.

The agency notes that the government’s medium-term budgetary plan aims to “gradually consolidate public finances, aiming only to comply with the deficit criterion of 3% of EU GDP by 2027 and to achieve a balanced budget by 2032. But “even these ambitious targets seems more and more out of reach,” she asserts.

She estimated that “the deficit will fall more slowly than the government’s December projections and ours.” In March, she recalled, we revised our deficit forecast to 5.1% of GDP for 2024 (instead of 4.6%) and 4.4% (instead of 4.2%) for 2025 in anticipation of weaker fiscal outcomes for 2023. Fitch also lowered its forecast for French GDP growth in 2024 to 0.8% from 1%, compared to the 1% expected by the government.

The agency believes the 2023 slippage “highlights the difficulties facing the French government in terms of low economic growth and a difficult domestic political environment”.

She estimated that in addition to the 10 billion euro “emergency savings” announced in February for 2024, “additional fiscal measures will probably be necessary to meet the government’s targets of 4.4% in 2024 and bring the deficit back to 2.7% by 2027. .

For him, “the domestic political situation remains fragile”. She recalls that President Emmanuel Macron “does not have an absolute majority in parliament” in this five-year term and that his government “had to rely on Article 49.3 of the Constitution” on numerous occasions to pass the previous budget without a vote or the pension reform last year.