Fitch Ratings Hosts Webinar on France's Sovereign Review Following Downgrade to 'A+'

Fitch Ratings Addresses France's Sovereign Outlook in Today's Webinar

Fitch Ratings is hosting a virtual webinar today, September 18, 2025, at 09:00 BST | 10:00 CEST, to delve into its recent sovereign review of France. The discussion follows the agency's decision on September 12, 2025, to downgrade France's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'A+' from 'AA-', marking the lowest rating the country has received from a major credit agency on record. The outlook remains stable.

Analysts from Fitch will provide an overview of the latest rating drivers and sensitivities, offering insights into key topics including the reasons for the recent downgrade, France's uncertain fiscal and debt outlook, and the structural and political constraints on fiscal reform. The French economy and its medium-term growth prospects are also on the agenda.

Drivers Behind the Recent Downgrade

The downgrade to 'A+' was primarily driven by several factors, notably France's persistently high and rising government debt ratio. Fitch projects the debt to reach 121% of GDP by 2027, an increase from 113.2% in 2024, with no clear path to stabilization in subsequent years. This rising public indebtedness is seen as limiting France's capacity to respond to new economic shocks without further deterioration of public finances.

Political fragmentation and polarization have also played a significant role. The government's defeat in a confidence vote over an austerity budget, which led to the resignation of former Prime Minister François Bayrou, highlighted the weakening capacity of the political system to deliver substantial fiscal consolidation. Fitch noted that the headline fiscal deficit has exceeded 3% of GDP in 17 of the last 20 years, with no primary fiscal surplus recorded since 2001, indicating a weak fiscal record.

Uncertain Fiscal and Debt Outlook

France's fiscal outlook remains challenging. The 2025 fiscal deficit is projected at 5.5% of GDP, a slight decrease from 5.8% in 2024, but still significantly higher than the projected eurozone median deficit of 2.7% and the 'A' rated median of 2.9%. Fitch anticipates that fiscal deficits will remain above 5% of GDP through at least 2027. The agency also expressed doubt that the government's target of reducing the deficit to 3% of GDP by 2029 will be achieved.

The downgrade has implications for borrowing costs, with French 10-year bond yields recently reaching 3.47%, approaching levels seen in Italy. While some financial experts suggest the market had largely priced in a potential downgrade, concerns remain that further rating actions by other agencies, such as S&P Global (expected to update its rating in November), could lead to forced selling of French bonds.

Structural and Political Constraints on Fiscal Reform

The ability to implement meaningful fiscal reforms is hampered by both structural and political constraints. The current government, led by newly appointed Prime Minister Sébastien Lecornu, faces a divided parliament and lacks an overall majority, making it difficult to pass deep spending cuts. The political landscape has seen considerable instability, with three different governments since the mid-2024 legislative elections.

Structurally, France's high share of public expenditure, including social spending at 32% of GDP and a tax burden of 45.6% of GDP (the highest in the EU), limits the scope for fiscal consolidation. The run-up to the presidential election in 2027 is also expected to further constrain the government's capacity for near-term fiscal adjustments, as political deadlock is anticipated to continue beyond the election.