Fitch downgrades France's rating, expects debt-to-GDP ratio to exceed 120% by 2027.

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Fitch downgrades France's rating to A+, raising concerns over high debt and political difficulties.

On September 12, Fitch Ratings published a report, lowering France’s sovereign credit rating from AA- to A+, one notch below the UK and on par with Belgium. Core factors behind the downgrade include France's government debt-to-GDP ratio is expected to continue climbing from 113.2% in 2024 to 121% in 2027, with no clear path to debt stabilization in the foreseeable future.

Fitch points out that this debt level ranks third among A and AA rated sovereigns, with the 2024 debt ratio already double the median for A-rated sovereigns and 15 percentage points higher than 2019 levels.

Fitch believes France’s rising public debt has weakened its ability to respond to new shocks, and any fresh crisis may further worsen public finances. In addition, political instability further exacerbates the difficulty of fiscal consolidation.

Since the snap legislative elections in mid-2024, France has changed governments three times, and defeats in no-confidence votes have highlighted growing domestic political fragmentation and polarization.

Fitch expects the political deadlock is likely to persist until after the 2027 presidential election, making this target less achievable. The proximity to the next election cycle will further constrain room for near-term fiscal consolidation.

Structural Barriers Limit Adjustment Room

France faces structural constraints in cutting spending and raising revenue.

Fitch notes that France’s tax-to-GDP ratio reaches 45.6%, the highest in the EU, which limits room for further tax increases.

Meanwhile, structural reforms aimed at controlling social spending have achieved limited results over the past decade and have encountered considerable political and social resistance. France's social spending accounts for 32% of GDP, far above the EU average of 26%.

Additionally, France has a poor track record in fiscal consolidation and compliance with EU fiscal rules.

The report mentions that in the past 20 years, France has maintained a fiscal deficit below 3% of GDP in only three years, and has not achieved a primary fiscal surplus since 2001.

Although the 2025 budget targets include some temporary revenue measures, such as special taxes on large companies and high-net-worth individuals, Fitch predicts that the deficit rate will remain high at 5.5% in 2025 and above 5.0% in 2026-2027.

Strong Fundamentals Still Support the Rating

Despite the above challenges, Fitch affirms that France’s “A+” rating continues to be supported by its solid credit fundamentals.

These strengths include France’s position as a large, diversified, high-income economy, a sound banking system, excellent financing channels, as well as strong institutional quality and eurozone membership. Additionally, its current account is expected to remain close to balance.

Fitch maintains its previous economic growth forecasts, expecting France’s real GDP growth rates in 2025, 2026 and 2027 to be 0.6%, 0.9% and 1.2%, respectively.

The report states that the indirect impact of the US imposing a 15% tariff on the EU will put pressure on growth, but high household savings rates and robust corporate balance sheets will support domestic demand as the main driver of growth.

Fitch gives France’s rating a “stable” outlook, indicating no further rating action in the short term. The report details potential factors for future rating changes:

If France can demonstrate that its government debt-to-GDP ratio is entering a downward path in the medium term, for example through effective fiscal consolidation or stronger economic growth, its rating could be upgraded.Conversely, if failure to implement fiscal tightening leads to a continued rise in debt, or if economic growth prospects weaken significantly, negative rating action may be taken.

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