The international rating agency Fitch Ratings 30 October 2026 unexpectedly revised the outlook for France's long-term sovereign credit rating from 'stable' to 'negative,' while maintaining the rating at A+. This decision is linked to the deterioration of the state finances of the second-largest economy in the eurozone, slowing economic growth, and increased debt servicing costs, reported the agency Reuters, citing a statement from Fitch.
The rating agency noted that since the previous review in August 2026, France's credit metrics have significantly worsened. Economic growth turned out to be weaker than expected, the profitability of government bonds has substantially increased, and the prospects for reducing the budget deficit have become less certain.
Fitch is particularly concerned about the dynamics of the state debt, which, according to the agency's forecast, will increase from 115.7% of GDP in 2025 to approximately 124% of GDP in 2028.
Thus, over three years, France's debt burden may grow by more than 8 percentage points of GDP, despite the government's announced plans for budget consolidation.
According to Fitch, the total amount of budgetary correction needed to stabilize state debt is now around 3.5% of GDP, compared to 3% of GDP in the August forecast.
An additional problem is the increase in spending on servicing state borrowings. The agency expects that interest payments on the debt will rise from 2.5% of GDP in 2025 to 3.3% of GDP in 2028.
This means that an increasingly larger share of budgetary resources will be directed towards payments to creditors, limiting the ability to finance other state expenditures without raising taxes or taking on new debt.
Fitch forecasts that the deficit of France's public administration sector in 2027 will amount to 5.5% of GDP. This significantly exceeds the benchmark set by European budgetary rules of 3% of GDP.
Meanwhile, the French government plans to reduce the deficit to 5% of GDP in 2027. Fitch's higher forecast reflects the agency's doubts about the feasibility of the planned savings measures and additional budgetary revenues.
Negative changes in the economy are also confirmed by the latest official statistics.
According to a preliminary assessment by France's National Institute of Statistics and Economic Studies (INSEE), published 30 October, the country's GDP in the third quarter of 2026 contracted by 0.1% after zero growth in the second quarter.
Meanwhile, exports decreased by 1.7% compared to the previous quarter, and investments in fixed capital shrank by 0.6%.
Additional pressure came from inflation, which, according to INSEE data published for October, accelerated to 3.4% on an annual basis.
The situation in the government bond market also reflects growing investor concerns.
The yield on ten-year French bonds at the end of October exceeded 5.14%, reaching the highest levels since 2002.
The increase in yields means a higher cost of raising new funds by the state and a gradual increase in expenses for refinancing existing debt.
Of particular importance is the widening gap between the yields of French and German government bonds, which are traditionally used as a benchmark for assessing debt risks in the eurozone.
In October, this gap reached 178 basis points compared to approximately 85 points at the beginning of September, indicating a noticeable increase in the risk premium for French government obligations.
Fitch also notes the political constraints on budget policy.
The French government does not have a stable parliamentary majority, and the approaching presidential elections in 2027 complicate the coordination of spending cuts and tax changes.
Additional pressure comes from mass protests related to the cost of living, funding of state services, and socio-economic reforms.
According to the agency, political fragmentation and tense social conditions complicate the implementation of a consistent multi-year policy of reducing the budget deficit.
However, Fitch believes that the budget for 2027 may be adopted using mechanisms provided for by the French Constitution, even without a stable majority in the National Assembly.
However, the adoption of the budget does not guarantee the achievement of the stated financial indicators if economic growth remains weak and expenses for servicing the debt continue to increase.
France's Minister of Economy and Finance, Roland Lescure, in an official statement from 30 October, said that the government is taking note of Fitch's decision.
According to him, it confirms the need to adopt a responsible budget by the end of the year, aimed at reducing the deficit in state finances to 5% of GDP.
The minister emphasized that the government intends to continue budget consolidation and ensure predictable conditions for economic activity.
Fitch's decision was another warning from the largest international rating agencies regarding France's financial situation.
23 October, Moody's maintained the country's credit rating at Aa3 with a negative outlook. Meanwhile, S&P Global Ratings rates France at A+ with a stable outlook.
Thus, two of the three largest international rating agencies now have a negative outlook on French government obligations.
Fitch plans to conduct the next rating assessment of France no later than the end of February 2027.
A negative outlook does not automatically mean a rating downgrade but indicates an increased risk of such a decision in the future if state finances continue to deteriorate.
At the same time, the agency emphasizes that the current rating of A+ is supported by the scale and diversification of the French economy, the high level of population income, the stability of state institutions, membership in the eurozone, and a relatively stable banking sector.
For the European economy, the deterioration of France's budgetary prospects is significant primarily due to the scale of its state debt and the role of the French financial market in the eurozone.
Further increases in the cost of state borrowings may increase debt servicing costs, limit the possibilities of budgetary stimulus, and increase pressure on state finances.
Moreover, maintaining high yields on government bonds may affect the terms of lending to French companies and households, as the cost of sovereign borrowings is one of the benchmarks for the financial market.
Fitch Ratings is one of the three largest international credit rating agencies, along with S&P Global Ratings and Moody's. The agency assesses the creditworthiness of states, corporations, and financial organizations. The rating of A+ belongs to the investment category and indicates a relatively high ability of the borrower to fulfill financial obligations.
Previously, a video analysis of countries around the world regarding external debts was prepared by the analytical center Experts Club — https://youtube.com/shorts/fUTLp6l_fTY?si=A2hpjEt0CCViKKnh
