Fitch Downgrades France’s Credit Rating from AA- to A+ amid Fallout from No-Confidence Vote

"Deepening Political Division
Weakening Capacity for Fiscal Soundness"

On September 12 (local time), international credit rating agency Fitch downgraded France’s sovereign credit rating by one notch from 'AA-' to 'A+'. The 'A+' rating is one level below those of South Korea and the United Kingdom. However, Fitch stated that the outlook for France’s future rating remains 'stable'.

Protest scene at Place de la R?publique in Paris on the 10th (local time). Photo by Yonhap News

In its report released that day, Fitch explained the downgrade by stating, "The government's defeat in the confidence vote demonstrates deepening domestic political division and polarization," and added, "Such instability weakens the political system’s capacity to achieve significant fiscal consolidation."

This rating decision by Fitch came amid nationwide 'national paralysis' protests across France against the government’s austerity measures.

The protests were sparked after former Prime Minister Francois Bayrou announced an austerity plan in July, which included a freeze on government spending and a reduction in public holidays. Angered citizens launched a campaign on social networking services to "paralyze the country on September 10." Public outrage intensified when President Emmanuel Macron appointed his close ally, Defense Minister Sebastien Lecornu, prompting people to flood into the streets.

France’s fiscal deficit stood at 5.8% of GDP last year, significantly higher than the Eurozone average of about 3.1%. The national debt has exceeded 113% of GDP, making it the third highest in the Eurozone after Greece and Italy.

With ongoing political turmoil over austerity policies in France, concerns about fiscal soundness are growing.

Fitch noted, "There is no clear path to stabilizing national debt in the coming years," and projected that "national debt will rise from 113.2% of GDP in 2024 to 121% in 2027."

Some analysts believe that this downgrade will put additional pressure on Prime Minister Lecornu, who is already struggling to draft next year’s austerity budget. However, experts expect that the impact will be limited, as Fitch’s downgrade was widely anticipated and already factored into the market.