Ratings agency Fitch has downgraded France to AA+ from AAA with a stable outlook, citing higher than expected government debt and the ongoing eurozone crisis (release).
Fitch now forecasts general government gross debt (GGGD) to peak at 96 per cent of gross domestic product in 2014, and decline only gradually over the long term, remaining at 92 per cent in 2017 (from previous forecasts of a 94 per cent peak in 2014 falling below 90 per cent by 2014).
Risks to the agency's fiscal projections lie mainly to the downside, owing to the uncertain growth outlook and the ongoing eurozone crisis, even assuming no wavering in commitment to fiscal consolidation. A debt ratio that is higher for longer reduces the fiscal space to absorb further adverse shocks.
Other factors involved in the downgrade include “substantially weaker” economic output and forecasts resulting in increases in France’s budget deficit, a number of structural challenges (including declining competitiveness and rigidities in the labour, goods and services markets) and a deteriorating current account deficit.
Although the outlook is stable, Fitch said there is "uncertainty over the near- and medium-term evolution of output, unemployment and the government deficit".
It expects the French economy to contract by 0.3 per cent in 2013, before returning to growth in 2014 with 0.7 per cent GDP growth. It is then expected to expand 1.2 per cent in 2015 before returning to its long-term trend of 1.5 per cent in 2016.
On Wednesday, IMF's chief economist Olivier Blanchard notably said that France was "slowly losing competitiveness".