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Investing.com -- Fitch Ratings has decided to keep France’s sovereign credit rating unchanged at AA-, disregarding its Sovereign Rating Model (SRM) that indicates an A+ score.
The SRM rating typically serves as the initial point for the analysis. However, Fitch’s sovereign rating committee considers this A+ rating as a potential temporary or unsustainable deterioration and has chosen to start the analysis with AA- instead.
In the ’Qualitative Overlay’ phase of the process, where the committee manually adjusts the SRM rating, Fitch added an upward adjustment for the macroeconomic environment, stating that the variability in the GDP is artificially high due to the pandemic’s impact on the data history.
A downward adjustment was made to reflect the high and continually increasing government debt-to-GDP ratio. These adjustments resulted in maintaining the overall rating at AA-.
The rating agency also kept the negative outlook in place. The decision highlights the fiscal slippage primarily caused by high expenditure growth that occurred despite the phasing-out of crisis-related spending.
Fitch also pointed to the revised deficit target under the Bayrou government and the temporary, revenue-focused nature of the consolidation efforts, similar to S&P’s observation two weeks prior. Consequently, Fitch predicts significant fiscal deficits in the coming years, with 5.5%, 5.6%, and 5.4% of GDP for the years 2025-27 respectively.
Fitch has also revised its growth forecasts downward: from 1.2% to 0.6% for 2025 and from 1.3% to 0.9% for 2026.
Citi commented on the decision, stating, "We still expect an eventual downgrade to A+ over the next year or so. Friday’s decision to leave the rating unchanged was in line with our base case, though by no means a foregone conclusion. We expect Fitch to lower the rating in one of the upcoming reviews."
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