Moody's Maintains France Aa3 Rating Amid Negative Outlook Over Fiscal, Political Risks

Moody's has maintained France's credit rating at Aa3 but placed it on a negative outlook due to political fragmentation and instability that threaten the country's ability to manage its fiscal deficit and debt effectively. This political turmoil stems from a lack of parliamentary majority, frequent changes in prime ministers, and the suspension of key reforms such as the pension reform raising the retirement age, which could exacerbate fiscal challenges and hamper economic growth. Despite these concerns, Moody's highlighted France's strong household and corporate finances, robust banking sector, and diversified economy as reasons for retaining the rating for now. The French government remains committed to reducing the deficit to 5.4% of GDP in 2025 and below 3% by 2029, although the parliamentary process risks diluting budget cuts. Moody's warning contrasts with Fitch and S&P Global, which have already downgraded France's rating, reflecting growing concerns over political paralysis and fiscal sustainability. French officials acknowledge the need for collective budget compromises to address these challenges amid ongoing political disputes.