This is good news for France. Despite a difficult economic environment, in particular due to inflation that has been rising for several months, the rating agency Fitch Ratings stated on Friday that ” aa » the country’s long-term debt rating. This rating, which is important because it affects the conditions under which the country can raise money in the financial markets, is the third best on Fitch’s 22-level rating scale and corresponds to a high-quality issuer.
However, this encouraging sign should be put into perspective as it is again accompanied by perspective ” negative ». In question, the state of public spending has been severely strained by the health crisis, which has required numerous very costly measures to support the most troubled sectors of the economy. ” Covid-19 has left the national debt significantly higher than in previous years », Fitch Ratings states in a press release. She expects the public deficit to reach 5.2% of France’s GDP in 2022, while the government has set a target of 5%. However, it is expected to decline in the following years to reach 4% in 2024. In May 2020, Fitch had lowered by ” steady » at ” negative » the outlook for France’s long-term debt rating. Another rating agency, Standard and Poor’s, also rates France’s long-term debt “ aa » but feels that his perspective is ” steady ». She maintained that rating last October.
Bring the deficit below 3% in 2027
For its part, the government intends to bring it below 3% by 2027, according to Emmanuel Macron’s pledge during his presidential campaign. Economics and Finance Minister Bruno Le Maire defended a cut in public spending “progressive, reasonable, without pressure to save”, with the volume of state and local government spending forecast to fall by 0.4% and 0.5% on annual average. But the government also plans to increase social spending, particularly on the back of plans to support hospitals. All in all, the total volume of public spending is only likely to grow by 0.6% over the next five years. Specifically, the executive branch intends more to stabilize the state and community’s way of life than to make real savings. For comparison, the increase in public spending has reached 2% per year over the last twenty years and 1.2% per year over the last ten years.
To achieve this goal, the government is counting on growth. “Growth must outpace government spending”, according to Bruno Le Maire. The Treasury estimates that growth will remain in the green at +2.5% in 2022. Especially since it could be happy about the good numbers that it recorded between April and June. In fact, GDP has recovered more dynamically than expected, up 0.5% according to data published by INSEE at the end of July. In the first quarter, however, growth fell by 0.2%.
For its part, Fitch Ratings seems less optimistic. In her opinion, the macroeconomic outlook has been clouded by the war in Ukraine and inflation. ” The pace of growth in economic activity slowed in the first half of the year as consumer spending fell significantly.”, notes the rating agency. With that, it forecasts full-year 2022 growth of 2.4%, close to forecasts from INSEE, which announced last week that it expected growth of 2.5%. Fitch then estimates the country’s growth at 2.1% in 2023 and 1.9% in 2024.
Against an increase in electricity bills
The main focus of this growth is inflation, which does not stop growing. In July, according to INSEE, price growth reached 6.1% over a year, the highest since July 1985. However, Fitch Ratings believes this should be the case ” slow down in the second half of the year and reach 4.2% by the end of the year”, depending on the development of energy prices, which weigh heavily on inflation. However, electricity prices in France could triple this winter. The rise in prices caused by the war in Ukraine, but also the difficulties of the country’s nuclear fleet, come into question. According to the European network of electricity transmission system operators ENTSO-E, 27 of the 56 reactors in the area were actually shut down at the beginning of July. Theoretically, however, the electricity mix is still almost 70% based on the nuclear fleet. France should therefore be forced to import large amounts of electricity to meet demand when temperatures are at their lowest.