Fitch Affirms France's 'A+' Rating but Warns on Widening Deficit

Fitch Ratings has affirmed France's sovereign credit rating at 'A+' with a stable outlook, providing temporary relief for the eurozone's second-largest economy. However, the agency issued a stern warning that a failure to rein in the country's widening fiscal deficit and rising public debt amid political uncertainty could lead to a future downgrade.

Fiscal Slippage and Political Headwinds

Fitch stated that a lack of "substantive progress" on deficit reduction, potentially hindered by ongoing political fragmentation, could result in a revision of the outlook to negative or an eventual downgrade. The agency cited France's high budget deficit and heavy debt burden as the primary constraints on its rating.

The ratings agency's projections have worsened, reflecting slower economic growth, higher debt-servicing costs, and increased defense spending. Fitch now forecasts France's deficit to be:

• 5.2% of economic output in 2026
• 5.5% in 2027
• 5.2% in 2028

Fitch noted that the 2027 presidential election is a key variable, with its baseline assumption being that political fragmentation will persist, continuing to impede fiscal consolidation efforts.

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Market Impact and Context

Investor concerns over France's fiscal and political vulnerabilities are reflected in the government bond market. The yield spread between French and German 10-year government bonds—a key indicator of country-specific risk—has widened to approximately 85 basis points, approaching its highest levels since 2012.

This decision comes as President Emmanuel Macron's government faces pressure from rising global borrowing costs and domestic political deadlock. A year ago, Fitch downgraded France, warning that rising debt would weaken its capacity to handle future economic shocks. Other agencies, including S&P Global and DBRS Morningstar, have also lowered their ratings for France amid past fiscal stalemates.

Government Response

In response to the report, the French Finance Ministry stated that the government remains "fully mobilized" to control the deficit and public debt in a "responsible and balanced manner." Fitch's review is the first of several scheduled in the coming weeks, which will coincide with challenging parliamentary debates over the 2027 budget.