Fitch Warns France: 5.4 Percent Deficit Raises Downgrade Risk
(MENAFN) Fitch Ratings cautioned Monday that France could face a negative rating outlook if it fails to make enough headway on its budget deficit, and that another sizable jump in government debt could prompt a downgrade.
The agency currently rates France at A+ with a stable outlook. It said the draft 2027 budget exposes growing difficulty in holding public debt steady, as weak economic growth, rising interest costs and entrenched political fragmentation weigh on the outlook.
The government now projects a 2026 deficit of 5.4% of gross domestic product (GDP). That overshoots its earlier 5% goal and Fitch’s August forecast of 5.2%. Fitch attributed the slippage to softer tax receipts, tied to weaker economic activity and labor market conditions, and to higher interest payments.
For 2027, the draft budget aims to bring the deficit down to 5% of GDP through €43 billion ($48 billion) in new savings, equal to 1.4% of GDP. The package freezes public-sector wages, caps inflation adjustments for pensions above €1,260 a month, and extends a special tax on large companies while narrowing its scope. Absent further policy action, the government estimates the 2027 deficit would climb to 6.4% of GDP.
Borrowing costs have surged since Fitch’s August review, the agency said. The 10-year government bond yield neared 5% in October, against a 2025 average of 3.4%. The spread over German government bonds widened to roughly 140 basis points, a sign that France is more exposed to swings in investor confidence.
As a result, Fitch now calculates that stabilizing the debt ratio would take a cumulative fiscal adjustment of about 3.5% of GDP, up from the 3% it estimated in August.
Still, the agency expects this budget to clear parliament more easily than in recent years, pointing to political incentives to avoid drawn-out uncertainty before the April 2027 presidential election. But Fitch stressed that approval alone would not close the gap, and warned that public patience with sustained fiscal austerity may be limited.
The agency currently rates France at A+ with a stable outlook. It said the draft 2027 budget exposes growing difficulty in holding public debt steady, as weak economic growth, rising interest costs and entrenched political fragmentation weigh on the outlook.
The government now projects a 2026 deficit of 5.4% of gross domestic product (GDP). That overshoots its earlier 5% goal and Fitch’s August forecast of 5.2%. Fitch attributed the slippage to softer tax receipts, tied to weaker economic activity and labor market conditions, and to higher interest payments.
For 2027, the draft budget aims to bring the deficit down to 5% of GDP through €43 billion ($48 billion) in new savings, equal to 1.4% of GDP. The package freezes public-sector wages, caps inflation adjustments for pensions above €1,260 a month, and extends a special tax on large companies while narrowing its scope. Absent further policy action, the government estimates the 2027 deficit would climb to 6.4% of GDP.
Borrowing costs have surged since Fitch’s August review, the agency said. The 10-year government bond yield neared 5% in October, against a 2025 average of 3.4%. The spread over German government bonds widened to roughly 140 basis points, a sign that France is more exposed to swings in investor confidence.
As a result, Fitch now calculates that stabilizing the debt ratio would take a cumulative fiscal adjustment of about 3.5% of GDP, up from the 3% it estimated in August.
Still, the agency expects this budget to clear parliament more easily than in recent years, pointing to political incentives to avoid drawn-out uncertainty before the April 2027 presidential election. But Fitch stressed that approval alone would not close the gap, and warned that public patience with sustained fiscal austerity may be limited.
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