Fitch Downgrades France to ‘A+’ with Stable Outlook
Fitch Ratings has downgraded France’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘A+’ from ‘AA-‘ with stable outlook. The downgrade reflects the following key rating drivers and their relative weights:
According to Fitch, France’s general government debt ratio will continue to rise, reflecting persistent primary fiscal deficits.
Fitch projects debt to increase to 121% of GDP in 2027 from 113.2% in 2024, without a clear horizon for debt stabilisation in subsequent years.
France’s 2024 debt ratio, already double the ‘A’ category median, was 15pp above its 2019 level and is now the third highest among sovereigns in the ‘A’ and ‘AA’ rating categories. France’s rising public indebtedness constrains the capacity to respond to new shocks without further deterioration of public finances.
The government’s defeat in a confidence vote illustrates the increased fragmentation and polarisation of domestic politics. Since the snap legislative elections in mid-2024, France has had three different governments.
This instability weakens the political system’s capacity to deliver substantial fiscal consolidation and makes it unlikely that the headline fiscal deficit will be brought down to 3% of GDP by 2029, as targeted by the outgoing government.
“We expect the run-up to the presidential election in 2027 will further limit the scope for fiscal consolidation in the near term and see a high likelihood that the political deadlock continues beyond the election”.
The rating note highlighted that France has a weak record of fiscal consolidation and compliance with EU fiscal rules. There have been past periods of fiscal tightening, but the headline fiscal deficit has exceeded 3% of GDP in all but three of the past 20 years, and there has not been a primary fiscal surplus since 2001.
The rating underscore the country’s high fiscal deficit as 2025 budget targets a fiscal adjustment of 0.7% of GDP, of which more than half derives from temporary revenue-raising measures, including exceptional levies on large corporations and high net-worth individuals.
Fitch projects a 2025 fiscal deficit of 5.5% of GDP, close to the government’s 5.4% target, and down from an outcome of 5.8% of GDP in 2024.
However, the 2025 figure remains high compared with the projected eurozone median deficit of 2.7% and ‘A’ median of 2.9%.
With uncertain fiscal consolidation path, Fitch forecasts France’s fiscal deficits will remain above 5.0% of GDP in 2026-2027 which incorporates assumption of consolidation measures of about 0.5% of GDP per year, offsetting higher interest costs and increased defence spending.
“We assume upcoming budget negotiations will produce a more diluted fiscal consolidation package than that proposed by the outgoing administration, and failure to pass a budget before year-end could trigger a period of ‘services votés’, during which no new discretionary consolidation measures could be implemented”.
Fiscal rigidities impact the rating. The high tax burden and high share of structural spending make sustained fiscal consolidation challenging. France’s tax-to-GDP ratio is the highest in the EU at 45.6% of GDP compared with an EU average of 40% (2023, Eurostat), leaving limited scope to raise taxes further.
Efforts to curb social expenditure through structural reform over the past decade have had limited results and faced substantial political and social opposition.
Despite reductions in housing and unemployment benefits, streamlining of healthcare expenditure, and labour market reform, France has struggled to reduce overall social spending, which is at 32% of GDP (EU average of 26%).
France’s ‘A+’ IDRs also reflect credit fundamentals, modest growth outlook and sound external finance. France’s ratings are underpinned by its large, diversified high-income economy, with per capita income and governance indicators well above the median for ‘A’ category peers.
These strengths are complemented by strong institutional quality, eurozone membership, a sound banking sector and excellent access to financing with a diverse investor base.
Its ratings are weighed down by high and rising debt, a socio-political context that makes fiscal consolidation hard and low potential growth, similar to many other euro area countries.
Fitch’s real GDP forecasts remain unchanged. Ratings analysts project real GDP growth of 0.6% in 2025, 0.9% in 2026 and 1.2% in 2027, reflecting low trend growth we estimate at 1.1%.
France has only moderate direct exposure to US trade, but the indirect impact of the 15% EU wide tariffs imposed by the US will weigh on growth.
Domestic demand will drive GDP growth. The current political and policy uncertainty may weigh on economic sentiment, but France’s high household savings rate and strong corporate balance sheets should support consumption and investment, particularly in the now low inflation environment.
France’s net external debt of 36% of GDP in 2024 largely reflects its role as a major debt issuer in global markets. A positive net foreign direct investment position of around 15% of GDP underscores the global reach of French multinationals and their capacity to absorb external shocks.
Fitch ratings analysts project the current account will remain close to balance, reflecting resilience in services exports and lower energy import bill. #Fitch Downgrades France to ‘A+’ with Stable Outlook
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