French economy: Moody's deals a heavy blow to the government

In a scathing review of the French economy, the rating agency Moody’s sharply questioned the government’s budgetary projections. It considers it “unlikely” that France will manage to bring its public deficit below the 3% mark by 2027, as planned in the multi-year plan. However, the agency goes further in its offensive, warning against the risks of an economic strategy deemed too optimistic.

2027, a Deficit Target Now Almost Unachievable

Announcing an economic deficit approaching 5.5% of GDP for 2023, the government had to lower its ambitions. Indeed, in this respect, Bruno Le Maire reaffirmed his “total determination” to get back below the 3% by 2027. Nevertheless, according to Moody’s, this target now seems to be a real challenge for public finances. The agency believes that the additional 10 billion euros in savings set for 2024 will be “insufficient” to put the trajectory back on track.

Moreover, the analysts do not spare the method used by the executive in the economic field. They specifically criticize “optimistic economic and revenue assumptions” that led to a deficit in 2023 that was 15.8 billion euros higher than initial forecasts. A gap that, according to Moody’s, “highlights the inherent risks” in the government’s budgetary program.

The Economic Threat of Debt Cost

Beyond the deficit, Moody’s criticisms also concern French public debt. The agency indeed expects that its level will “slowly rise” from 2024, exposing the country’s economy to debt-related expenses “not seen in more than 20 years.”

An economic outlook all the more worrying as the rise in interest rates mechanically increases the cost of servicing the debt. A vicious circle that the government had hoped to break, by restoring healthier public finances by the end of the term.

To top it all, in the economic field, Moody’s also considers it “unlikely” that the target of a 4.4% deficit will be met in 2024, despite the savings already announced. The agency recalls that a reduction of one percentage point in one year “has been achieved only once since 2000, except under exceptional circumstances.”

With this stinging opinion, Moody’s seriously derails the government’s economic debt reduction plan. Its drastic criticism of the realism of the budgetary forecasts could well undermine the credibility of the executive. What’s more, the agency strengthens fears of a mounting debt burden in the years to come. A double setback for the government, which is obliged to redouble its economic efforts, lest it suffer a downgrade of the prestigious French rating.