Fitch Ratings has downgraded France’s Long-term foreign and local currency Issuer Default Ratings to ‘AA+’ from ‘AAA’. The Outlook is Stable.
The French Finance Minister, Pierre Moscovici, made a statement in response to the new rating:
“Pierre Moscovici reiterates the government’s determination to press ahead with fiscal consolidation, renewing France’s international competitiveness and getting the economy back on track to boost growth and employment.”
The ratings agency has also affirmed France’s Short-term foreign currency Issuer Default Ratings at ‘F1+’ and the Country Ceiling at ‘AAA’.
The important changes which underlined the decision include a more pessimistic view of the way general government gross debt will decline into 2017. Initial forecasts saw the GGGD declining to below 90% by that year, but now estimates France will still be at 92% by that time.
Fitch defended the move saying:
“The only ‘AAA’ country with a higher debt ratio is the US (AAA/Negative), which has exceptional financing flexibility and debt tolerance afforded by the preeminent global reserve currency status of the US dollar…
“…A debt ratio that is higher for longer reduces the fiscal space to absorb further adverse shocks.”
Weighing less adversely on the agency’s ratings were France’s weak economic output, unemployment and declining competitiveness as well as subdued external demand.
Fitch took the time to praise France for a wealthy and diversified economy strengthened by political stability, saying that a strong track record still earns France a financial forecast of “Outlook Stable”.