The rating agency Fitch confirmed Friday, November 4, 2022 the outlook “negative” of France’s note, while the government had Parliament vote its 2023 budget for the State, passing through the use of Article 49.3 of the Constitution.
The agency justifies, in a press release, its decision by “energy price developments as well as a weakened macroeconomic outlook for Europe which heightens risks to the fiscal trajectory”.
Fitch also maintains its rating for French sovereign debt at AA, which places the country among the issuers of high quality debt, but the negative outlook indicates a possible downgrading of this rating, which would then switch to A, therefore likely to be affected by changes in the economic situation.
The rating agency estimates that the public deficit should reach 5.2% this year and anticipates a slight improvement, to 4.9% for 2023, quite close to the government’s forecast, which sets it at 5%.
Difficult political environment
In the medium term, Fitch also expects a level of debt that will remain relatively stable, with a slight increase in 2023 then a slight decrease in 2024, at a high level, around 112% of GDP.
Finally, the agency is concerned about the “political fragmentation” and the difficulties it entails in order to conduct budgetary policy, as highlighted by the discussions on the 2023 budget in Parliament, which the government ultimately shortened by making use of Article 49.3.
“This points to a more challenging environment for conducting economic policy […] with a less favorable context for reforms in sectors such as pensions”underlines the press release.
More broadly, if Fitch expects an economic slowdown in 2023, with a growth forecast of 1.1% (compared to 2.1% envisaged in August), the agency expects a recovery from 2024 at 1, 9% and a decline in inflation, to 3.4% from the end of this year and close to 2% for 2024.