Moody's and Fitch speak out this Friday: should we expect a downgrade of the French debt rating ?

La France bénéficie actuellement d'une note AA de la part de l'agence Fitch. Illustration MAXPPP – Jonas Hamers/ImageGlobe

Ce vednredi 26 avril, les agences de notation Moody's et Fitch doivent se prononcer. Faut-il s'attendre à une dégradation de la note dans un contexte économique jugé compliqué ? 

The spring verdicts from the rating agencies Moody's and Fitch on French sovereign debt are expected on the evening of Friday April 26, while the recently announced worsening of public finances suggests at best unflattering comments .

What is the context ?

Emergency Savings Plan

In February, the government had to lower the expected growth from 1.4% to 1% this year, and announce that it had to urgently find 10 billion savings on the state budget.

At the end of March, it was the National Institute of Statistics (Insee) which announced that the public deficit had slipped to 5.5% of GDP in 2023 instead of 4 .9%.

And as Bercy had to recognize that it would still be 5.1% this year, instead of 4.4%, we still need to make various efforts of 10 billion &# 39;euros until the end of the year.

Expenses on the rise

However, observe the economists at Banque Postale, the unpleasant surprise comes more from "revenues lower by 21 billion euros than expected" last year, only expenses, which, for their part, "were controlled: they increase by +3.7% after +4.0% in 2022& ;quot;.

As a proportion of GDP, observe these economists in their latest Rebond note, they "continue to decline and stand at 57.3% of GDP after 58.8% in 2022 and 59.6% in 2021", while remaining at a level higher than pre-Covid.

High debt amount

Agencies are also worried of the amount of debt, which exceeds 3,000 billion euros and now reaches 110.6% of French GDP.

"The French debt is 22 points of GDP above the euro zone average", note Rebound: "this is the third highest ratio in the EU, after Greece and Italy."

Fitch downgraded France's sovereign rating in April 2023, lowering it by one notch to AA-, with a 'stable' outlook.

Will the rating drop ?

This month, while judging "unambitious and increasingly out of reach" the deficit reduction objectives put forward by the government by 2027, the agency indicated that it would not lower the rating again, unless " improbable" further significant worsening of the debt.

Moody's, which places France at Aa2 — a step above Fitch — with a "stable" outlook, also judges "improbable", like the IMF or like the High Council of Public Finances (HCFP), the hypothesis of a recovery of the public deficit below 3% of GDP in 2027, announced by the government to comply with Brussels obligations.

Will the agency lower its rating on Friday, or will it match the current rating with a "negative" outlook ;quot; ? Moody's already highlighted at the end of March "the risks" linked to "optimistic economic and revenue assumptions, as well as unprecedented declines in spending".

The agency can choose, as it did in October, to let this half-yearly meeting pass without issuing an opinion. But "by the yardstick" of the latest comments made by Moody's, underlines Rebond, "the rating of French debt should be challenged from April".

The note from the 3rd agency at the end of May

Despite their recurring criticism, the agencies have shown a certain "magnanimity" towards France in recent years, maintaining its ratings among the best in the world, due to the "liquidity" of its debt or the solidity of French banks, notes Eric Dor, director of economic studies at the IESEG School of management.

"But the risk is that these arguments become insufficient to avoid degradation" , he warns. Bruno Le Maire wants to remain "serene" in the storm: "the agencies are doing their job, I am doing my job as Minister of Finance which consists of restoring the public accounts", a he said again Wednesday on BFM Business.

The minister will still have to face the verdict of the third agency, and the most watched, on May 31, nine days before the European elections. S&P currently rates France AA, equivalent to Moody's Aa2, but its outlook is negative.