Fitch "shows mercy" and maintains France's A+ rating, but warns that uncontrolled deficits could lead to a downgrade

According to Jinse Finance APP, Fitch Ratings recently announced that it has maintained France's sovereign credit rating at “A+” with a “stable” outlook, despite issuing another warning that, amid escalating political uncertainty, a persistently widening fiscal deficit and rising public debt could still trigger a downgrade in the future.

As the second largest economy in the Eurozone, France has been spared a downgrade this time. Fitch also noted that its current rating assessment still leans toward maintaining the existing credit grade. At present, France's rating is six notches above “junk status,” and at the same level as Belgium and Slovenia.

Fitch stated in its announcement: “If France fails to make substantial progress in reducing its deficit — for example, if persistent political fragmentation hampers efforts — the rating outlook could be revised to ‘negative.’ A further significant increase in government debt could also trigger a downgrade.”

Although the market generally anticipated no change in this rating, Fitch's decision to maintain it still gives President Macron some breathing room. Currently, French public finances are under the twin pressures of rising global bond yields and a domestic political stalemate, with external concerns mounting.

Looking back a year ago, Fitch previously downgraded France, warning at the time that rising debt would undermine its capacity to respond to new shocks.

Since then, the Iran war has fueled another surge in inflation and hindered economic growth, pushing the French economy to the brink of recession. The French government has admitted that the current macro environment makes it difficult to achieve its goal of slightly narrowing the deficit ratio from last year's 5.1% of GDP to 5%.

Meanwhile, parliamentary wrangling over next year's budget is about to begin, further complicating the fiscal situation. Over the past two years, the fragmented National Assembly has repeatedly ousted prime ministers over fiscal plans. With only eight months left until the presidential election, the chances of the minority government reaching any compromise are increasingly slim.

Recently, a global bond market sell-off has driven up France's borrowing costs significantly. Political and fiscal vulnerabilities make France particularly sensitive; the spread between France's 10-year government bond yield and that of Germany — a key gauge of country-specific risk — has climbed to around 85 basis points, just below the highest closing level since 2012.

Fitch stated: “We believe that the 2027 presidential election and any subsequent legislative elections will be important variables shaping France's policy trajectory and fiscal outlook. Our base case assumes that political fragmentation will persist after the elections, continuing to constrain deficit reduction efforts.”

Fitch expects France’s fiscal balance will not improve further, forecasting a deficit-to-GDP ratio of 5.2% in 2026, 5.5% in 2027, and 5.2% in 2028. These projections mark a deterioration from previous assessments, mainly reflecting slower economic growth, rising debt service costs, and increased defence spending.

Fitch emphasized: “France’s high fiscal deficit and heavy debt load remain the main constraints on its rating.”

Responding to Fitch's assessment, the French Ministry of Finance said the government would continue to be “fully mobilized” to control the deficit and public debt in a “responsible and balanced manner.”

This Fitch report is the first in a series of rating reviews to take place over the coming weeks, set to coincide with the 2027 budget debate. During last year's fiscal deadlock, one government lasted just 24 hours after appointment, while S&P Global Ratings and DBRS Morningstar both downgraded France as well.