Despite the budget crisis in France, S&P Global Ratings decided to maintain France’s rating at ‘AA-‘ and the country’s sovereign outlook at “stable” this Friday, relieving some of the pressure on French Prime Minister Michel Barnier, at a time when his government is at risk.
In a statement this Friday, the ratings agency said that the French economy – the second largest in the Euro Zone – is resilient despite political instability, maintaining the rating seven levels above “junk”.
As factors that support the rating, the agency cites the impact of labor reforms implemented under Emmanuel Macron’s presidency, the high private sector savings rates, exports and integration into the EU.
However, it warns that “increased political fragmentation is complicating budgetary governance, most notably through the postponement of the approval of a credible budget for 2025”, writes S&P.
“Still, our base scenario is that the French authorities move forward with fiscal consolidation representing just under 1% of GDP next year as part of a medium-term plan to moderate high budget deficits,” says S&P.
The decision gives some relief to France’s rulers after the May rating cut by S&P, shortly before Macron called early elections, and the two other major agencies – Fitch and Moody’s – having recently placed their outlook in “negative” following of the political crisis.
Barnier will now try to approve the budget, which expects to bring the deficit to 5% next year with 60 billion euros in tax increases and spending cuts. However, if he does not give in to the demands of Marine Le Pen’s National Union by next Monday, he could face a motion of censure and see his government overthrown.
The political crisis is causing fear among investors and has already led to the spread between the yields on French sovereign bonds and their German equivalents – an indicator of debt risk – reaching 90 basis points, a maximum that has not been seen since sovereign debt crisis.
Source: www.jornaldenegocios.pt
