France suffers cut to credit outlook as economy struggles

Guy Bentley
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French economy stagnates (Getty: Source)

The beleaguered French economy has been dealt a fresh blow by credit rating agency Standard and Poor's (S&P), with its credit outlook cut to negative due to the country's sluggish performance and lack of reform.

Furthermore, the prospects for economic prosperity in the near term remain low with S&P commenting in a statement:

We believe that...a recovery of the French economy could prove elusive.

However, the news was not as bad as it could've been as S&P affirmed France's AA/A-1+ rating.

France's finance minister Micahel Sapin, responding to the news said:

We will pursue the needed reforms, to boost our medium term growth prospects.

French debt is one of the surest and most liquid in the world, with debt levels very much contained.

In the second quarter of this year, the French economy stagnated and is forecast to grow by just 0.2 per cent in the third quarter, according to the Bank of England.

France recently abandoned attempts to reduce its deficit to the EU threshold of three per cent of GDP by 2015. The French government's decision to delay cutting its deficit was particularly unwelcome in Berlin and Brussels, with many austerity minded European leaders believing France is not serious about structural reform.

Olivier Passet, a senior economist at the French economy research institute Xerfi, said last week:

France has made it very difficult for Brussels to approve its budget without great risk to its credibility. The text it is submitting is a bit of a provocation.

France's deficit is expected to be in line with EU rules by 2017, two years later than had originally been agreed. S&P said the negative outlook indicated a one in three chance of events developing in a way that would lead to a downgrade of France's credit rating within the next two years.

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