PARIS, Jun 2 (Reuters) – Rating agency S&P on Friday spared France the embarrassment of downgrading the country’s sovereign debt but remained cautious on the outlook amid tight public finances.
S&P left the country’s AA rating unchanged after a regular review, saying the outlook remained negative due to “downside risks to our forecast for France’s public finances given the already elevated levels of public debt”.
A downgrade would have been the second in six weeks after rival agency Fitch lowered its rating to AA- in late April amid concerns about possible political paralysis and social unrest following the passage of an unpopular pension reform.
Finance Minister Bruno Le Maire told weekend newspaper Le Journal du Dimanche that S&P’s decision to maintain its AA rating was a “positive signal” and that the government’s public finance strategy was credible.
S&P said potential triggers for a downgrade could come in the form of an ongoing economic slowdown or a failure to contain public finances, particularly through strong government spending.
Le Maire said “several billion euros” in budget savings would be detailed later this month following a spending review for which he asked each ministry to identify cuts worth 5% of their budget.
S&P said it now expects a slightly smaller public sector budget deficit after recently updating the government’s long-term fiscal plans, which aim to bring the deficit down to 2.7% of economic output in 2027 from 4.9% this year to lower.
The rating agency also said it was positive about unemployment benefit reform last year and this year passed legislation raising the retirement age by two years to 64, sparking weeks of protests and strikes.
Reporting by Leigh Thomas; Edited by Diane Craft and Will Dunham
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