A file picture shows two ‘A’ letters and a ‘+’ symbol placed on a French map.
NEW YORK/PARIS: France lost the last of its major AAA ratings on Friday in a blow to President Francois Hollande as his government battles to rein in public finances and kick-start the stalled economy.
Fitch cut France’s credit rating by one notch to AA-plus, citing a deteriorating debt outlook and an uncertain economic environment as the euro zone crisis risked flaring up anew.
The eurozone’s second-largest economy, which fell into a shallow recession in the first quarter of the year, had already lost its prized AAA ratings with S&P and Moody’s last year.
In explaining its cut, Fitch cited a slew of causes for concern including a weaker economic output, a jump in the French unemployment rate, budget deficits and subdued external demand.
Risks to fiscal projections “lie mainly to the downside,” the rating agency said in a statement, keeping a stable outlook on its new rating. “A debt ratio that is higher for longer reduces the fiscal space to absorb further adverse shocks,” it said.
Fitch raised its estimate for how long it will take France to shave down its debt, forecasting it would peak at 96 percent of gross domestic product next year and still be as high as 92 percent in 2017.
The government projects its efforts to whittle down public spending will have cut its debt to just over 88 percent by then.
Standard & Poor’s rates France at AA-plus with a negative outlook. Moody’s rates it Aa1 with a negative outlook, meaning both agencies see another rating cut likely. The eurozone’s three-and-a-half-year sovereign debt crisis has strained the monetary union as even major economies such as France continue to feel the pain of stalled growth.
French GDP, flat in 2012, is expected to drop 0.3 percent in 2013 before expanding 0.6 percent in 2014, according to the median forecast in a Reuters poll this week.
Although long anticipated, the downgrade is grim news for Hollande two days before the country celebrates its national Bastille Day with a military parade through Paris and as he is grappling with dismal approval ratings over his failure so far to pull the economy out of its slump.
Analysts down-played the likelihood of any major market impact of what Nicholas Spiro, managing director at Spiro Sovereign Strategy, called a “belated” downgrade, after investors shrugged off other rating cuts over the past months. But they said this was a reminder to France that it must press ahead with tough structural reforms to regain competitiveness.
“If Italy’s debt market was able to shrug off this week’s sovereign downgrade, then France’s is even less likely to be affected,” Spiro said.
Reuters
