Moody’s Ratings kept France’s credit rating unchanged at Aa3 on Friday, despite a steady rise in its debts and the political fragmentation that has made it difficult to rein in borrowing. The agency cited the country’s diversified economy and strong public institutions, and said the outlook remained negative, driven by political instability that could challenge efforts to address its fiscal pressures. Moody’s said this was not a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future.
“A significant and sustained fiscal effort will still be needed beyond the presidential elections of April and May 2027 to bring France’s public finances onto stronger footing and stabilise a debt burden that will exceed 120% of GDP in 2027,” Moody’s said. The Aa3 rating assumes that France successfully adopts a deficit-reducing budget for 2027, the agency added.
The decision defied expectations going in. Most analysts had expected Moody’s to cut the Aa3 rating, which has carried a negative outlook since October last year, and Reuters reported on Friday morning that a downgrade was largely priced in, with attention on the outlook as the variable that would move markets. France’s benchmark 10-year bond yield hit 5.14 percent on Thursday, its highest level since July 2002, and the risk premium on French government debt over German bonds rose to its highest in 15 years, leaving France paying more to borrow than lower-rated Italy and Greece.
The hold leaves Moody’s rating of France above those of Fitch Ratings and S and P Global Ratings, which cut the country to A+ in 2025, one grade below Aa3 on their respective scales. Moody’s had itself downgraded France from Aa2 to Aa3 in late 2024. France’s budget deficit is expected to reach around 5.4 percent of gross domestic product this year, against a European Union limit of 3 percent, public debt is approaching 120 percent of GDP, and the International Monetary Fund expects the French economy to grow just 0.4 percent this year, compared with 1.1 percent for the euro zone. Almost 55 percent of French debt was held overseas last year, which leaves its borrowing costs exposed to international investor confidence.
The relief for borrowing costs may be limited. The negative outlook stays in place, the rating now depends on a 2027 budget that a hung parliament has yet to pass, and S and P is scheduled to conduct the next review of France’s rating on November 27.