Moody's Affirms France Credit Rating at Aa3 While Keeping Negative Outlook
Moody's affirmed France's Aa3 credit rating with a negative outlook, citing political instability and surging bond yields. The eurozone's second-largest economy faces a 5.5% deficit and rising debt burdens.
Moody's has maintained France's credit rating at Aa3 despite ongoing political uncertainty and social unrest, though it kept the country's rating outlook at "negative." The Aa3 rating is considered by Moody's to be a high-grade investment tier. Investors had awaited the decision with intense anticipation as France, the eurozone's second-largest economy, deals with turbulent protests and a sharp surge in bond yields.
According to Moody's economists, the negative outlook reflects the growing risk that the fragility of France's political arena will continue to impair the functioning of state institutions. The agency noted it could return France's rating outlook to "stable" if the government succeeds in reducing its high budget deficit. Economists warned that political instability and social tensions could hinder Paris from tackling key challenges, such as a high fiscal deficit, a growing debt burden, and rising borrowing costs.
France's 10-year government bond yield crossed the 5% threshold this week for the first time since 2002, with the spread over German bonds hitting a 15-year high. France's budget deficit stands at approximately 5.5% of GDP, well above the 3% limit mandated for European Union member states. The country faces over one trillion dollars in debt maturing by 2030, and the French Ministry of Finance warned last month that the debt-to-GDP ratio is projected to reach 121.7% by 2027.
