Fitch warns France of rating downgrade risk — Anadolu Agency

Rating agency Fitch Ratings has warned that insufficient progress by France in reducing its budget deficit could lead to a deterioration in the outlook for its credit rating. A further significant increase in public debt could provide grounds for a downgrade of the country’s rating, according to the agency. Anadolu Agency reports.

Fitch currently rates France at A+ with a stable outlook. The agency noted that the proposed 2027 budget demonstrates growing difficulties in stabilizing public debt due to weak economic growth, higher debt-servicing costs, and persistent political fragmentation.

Deficit exceeds previous expectations

The French government expects the budget deficit in 2026 to amount to 5.4% of GDP. This is higher than the previous target of 5% of GDP and Fitch’s August forecast of 5.2% of GDP. The agency attributed the deterioration to weaker tax revenues amid slowing economic activity and labor market conditions, as well as rising interest payments.

The draft budget for 2027 provides for a deficit of 5% of GDP and new savings totaling €43 billion, or 1.4% of GDP. The proposed measures include a freeze on public-sector wages, limits on pension indexation for pensions above €1,260 per month, and an extension of a special tax for large companies while narrowing its scope.

More current news is available on the UA.News Telegram channel Telegram.

Rising borrowing costs

Without additional policy steps, the government estimates next year’s deficit at 6.4% of GDP. Fitch also reported that yields on 10-year French government bonds approached 5% in October, while the average figure in 2025 was 3.4%.

The yield spread between French and German government bonds widened to around 140 basis points, indicating greater vulnerability to changes in investor confidence. According to Fitch, stabilizing France’s public debt-to-GDP ratio requires a cumulative fiscal adjustment of around 3.5% of GDP, compared with the 3% forecast by the agency in August.

The agency expects budget adoption may proceed more easily than in previous years, given political incentives to avoid prolonged uncertainty ahead of the presidential election in April 2027. At the same time, Fitch stressed that budget approval itself would not eliminate the scale of the required fiscal adjustment.