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

In a vitriolic opinion on the French economy, the rating agency Moody's sharply questioned the government's budgetary projections. She considers it “unlikely” that France will manage to bring its public deficit below 3% by 2027, as planned in the multi-year plan. However, the agency is pushing its offensive further, warning against the risks of an economic strategy considered too optimistic.

2027, a deficit target that has become almost unattainable

By announcing an economic deficit approaching 5.5% of GDP for 2023, the government had to lower its ambitions. Certainly, on this level, Bruno Le Maire reaffirmed his “total determination” to return below 3% in 2027. However, according to Moody's, this milestone now seems to be a real challenge for public finances. The agency thus estimates that the 10 billion additional savings recorded for 2024 will remain “insufficient” to put the trajectory back on track.

In addition, analysts do not spare the method used by the executive in the economic field. They denounce in particular “optimistic economic and revenue assumptions” having led to a 2023 deficit 15.8 billion higher than initial forecasts. A gap which, according to Moody's, “underlines the inherent risks” of the government's budgetary program.

The economic threat of the cost of debt

Beyond the deficit, Moody's criticism also concerns the French public debt. The agency in fact expects its level to “rise slowly” from 2024, exposing the country's economy to costs linked to its economic weight “never seen in more than 20 years”.

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An economic outlook that is all the more worrying as the rise in interest rates mechanically increases debt service. A vicious circle that the government hoped to break, by restoring healthy public finances by the end of the five-year term.

To top it all off, in the economic field, Moody's also judges “unlikely” that the target of 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 only been made once since 2000, excluding exceptional circumstances”.

With this scathing opinion, Moody's is seriously derailing the government's economic debt reduction plan. His drastic criticisms of the realism of budget forecasts could well undermine the credibility of the executive. Above all, the agency reinforces fears of an increasing debt burden in the years to come. A double setback for the government, forced to redouble its economic efforts, under penalty of suffering a downgrade in the prestigious French rating.

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