Moody's Downgrades France's Credit Outlook from 'Stable' to 'Negative'

"Political Instability Undermines Government's Ability to Address Policy Challenges"

International credit rating agency Moody's has downgraded France's credit outlook from 'stable' to 'negative' amid ongoing fiscal and political crises.

According to Bloomberg News, on October 24 (local time), Moody's maintained France's credit rating at Aa3 but gave a more pessimistic outlook.

Moody's stated, "The change to a negative outlook reflects the increasing risk that France's divided political landscape will continue to undermine the functioning of the legislative branch." The agency also analyzed, "Such political instability poses a significant risk to the government's ability to address major policy challenges, including a high fiscal deficit, rising debt burden, and persistently increasing borrowing costs."

Prior to Moody's, in September and October, international credit rating agencies Fitch and Standard & Poor's (S&P) each downgraded France's credit rating by one notch from 'AA-' to 'A+'. Both agencies also expressed concerns that France's political instability could hinder efforts to resolve its fiscal crisis.

Prime Minister Sebastien Lecornu narrowly avoided a parliamentary vote of no confidence by announcing that President Emmanuel Macron's pension reform, aimed at strengthening public finances, would be suspended until the next presidential election.

However, Moody's warned that if this suspension of pension reform continues for several years, France's fiscal challenges will intensify and the country's potential economic growth will be harmed.

The French National Assembly began budget discussions on October 24.

Moody's projected, "If a budget is not adopted that proactively curbs spending or increases revenue, France's fiscal deficit will remain larger and persist for a longer period than we currently anticipate."