On the future of the France here comes the S&P and Morningstar Dbrs warning: the two rating agencies believe that the outcome of the elections makes it challenging to define an adequate economic and fiscal policy. Despite these considerations, France’s rating and outlook are not in question for now.
S&P Global judges economic policy choices at risk
The agency, which maintains a “AA-” rating with stable outlook on France, believes that the new parliamentary scenario will complicate probably the definition of policies. According to the rating agency, in fact, the current lack of visibility on the nature of the next government is creating uncertainty on the details of the strategy of economic and fiscal policy.
An important test will be the definition in October of the Budget 2025which will give an indication of the new government’s willingness to reduce France’s large budget deficits and respect EU fiscal rules. But the fragile majority exit from these elections, could make implementation difficult of significant political measures, given the ever-present risk of parliamentary distrust.
“The next government’s approach to public finances and economic and budgetary reforms could be key to determining France’s creditworthiness,” warns S&P, which for now does not see any impact on the French rating, supported by expectations of an acceleration in economic growth.
The rating on France – the agency explains – would come under pressure if economic growth were to materially fall short of expectations for a prolonged period, or if France failed to reduce its large budget deficit and if government interest payments, as a share of total government revenue, increased beyond current expectations”.
Morningstar Dbrs sees “stall” risk
The Canadian agency too Morningstar Dbrs see one “highly fragmented” political landscape and the possibility of forming a new government is “unclear”. For this reason, the agency, which maintains a high “AA” rating on France with a stable outlook, believes that the definition of economic and fiscal policies will be “difficult” and that there will be “significant delays in adjusting the medium-term fiscal outlook”.
If, therefore, for economic and fiscal policy there is the risk of a “stalemate”the agency instead believes that “the risk of a significant change in France’s European, foreign and climate policies remains low”.
“The composition of the National Assembly should allow for a broad political continuity for European, foreign and climate policies “France’s fiscal trajectory is likely to be pivotal,” said Mehdi Fadli, senior vice president at Global Sovereign Ratings Group, adding that “upcoming fiscal events are likely to be pivotal to France’s fiscal trajectory.”
Moody’s more severe on election results
The rating agency Moody’s had already expressed her opinion on the French elections, even before reaching the first round, warning that a prolonged period of political instability after the elections could have “a negative impact” on the rating Frenchproducing a surge in government bond yields and a widening of the spread.
“There potential instability politics represents a credit riskgiven the difficult fiscal framework that the next government will inherit,” the agency explained at the end of June.
Fitch concerned about reforms
In mid-June too Fitch warned that early elections could increase the uncertainty on the path of fiscal consolidation and on the prospects of further economic reforms.
The elections could lead to a so-called “cohabitation” – the agency explained – in which the president and the prime minister come from opposing parties” and this “would complicate policy making” economic and fiscal, which are decided by the National Assembly or by the majority party.
