Moody’s Lowers France Credit Outlook to Negative Amid Political, Fiscal Risks

Moody's has downgraded France's credit outlook from stable to negative, maintaining its sovereign rating at Aa3 but signaling increased risks due to political fragmentation and fiscal challenges. This move reflects concerns over France's ability to implement key reforms and manage its growing debt, which stands at over 115% of GDP, amid a weakened minority government struggling to pass budget measures. The suspension of pension reforms and ongoing political instability have heightened investor anxiety, with bond yield spreads widening compared to Germany. France aims to reduce its budget deficit to 4.7% of GDP by 2026, but Moody's warns that prolonged political paralysis could hinder these goals and increase borrowing costs. Recent downgrades by S&P and Fitch echo these concerns, highlighting the fragile state of France's public finances and economic outlook. The situation underscores the challenges facing President Emmanuel Macron's administration as it confronts mounting fiscal pressures and political division.