Moody’s Maintains France’s Credit Rating but Lowers Outlook to ‘Negative’ Amid Political Uncertainty

Paris, The Gulf Observer: Credit ratings agency Moody’s on Friday affirmed France’s long-term foreign currency sovereign credit rating at Aa3, but revised the country’s outlook from “stable” to “negative”, warning that growing political fragmentation could hinder efforts to rein in the fiscal deficit.

The decision to maintain France’s rating offers temporary relief to the French government, following a series of recent downgrades by Fitch, DBRS, and S&P Global, all issued within a little over a month.

Finance Minister Roland Lescure said in a statement that Moody’s verdict underscores “the absolute necessity of building a collective path toward a budgetary compromise.” He reaffirmed the government’s fiscal targets, stating that France remains “determined to meet the 2025 deficit goal of 5.4 percent of GDP and continue on an ambitious trajectory to reduce the public deficit below 3 percent of GDP by 2029, while preserving growth.”

Despite avoiding a downgrade, Moody’s issued a cautious assessment, warning that the government’s decision to postpone the landmark pension reform until 2028 could further strain fiscal discipline and weaken long-term economic potential by reducing labor supply.

“France has highly competent public institutions, although the strength of the institutional framework is being tested in the context of an increasingly challenging domestic political backdrop,” the agency noted.

Prime Minister Sébastien Lecornu was compelled to shelve the pension reform in a bid to secure vital parliamentary support from the left, amid ongoing threats to topple his fragile minority government.

However, political tensions remain high. On Friday, the Socialist Party renewed its threat to bring down the government by Monday unless a billionaires tax is included in the 2026 budget. The heightened instability adds to concerns over France’s economic outlook, with business activity showing a sharper-than-expected decline in October, according to newly released data.

Analysts warn that continued political volatility could further complicate the government’s efforts to pursue fiscal consolidation and maintain investor confidence in Europe’s second-largest economy.