LONDON (Reuters) – There is a 30%-40% chance that France will see further negative credit rating moves this year unless the government can finally find a way to rein in its spending, analysts at JPMorgan have warned.
Emmanuel Macron’s government suffered a series of downgrades or “outlook” cuts last year as political upheaval, including four different prime ministers over the twelve months, compounded deteriorating finances.
The downgrades left France’s rating at its lowest on record at AA-, or Aa3 on Moody’s equivalent scale. Fitch, which is due to review the country again in mid-March, has its rating on a ‘negative outlook’ – effectively a downgrade warning.
“We see decent risks (30%-40%) of further negative rating actions in France if the government proves unable to deliver a credible fiscal consolidation plan over the medium term,” JPMorgan said in a note published late on Monday, referring to either a full downgrade or an outlook cut.
Spending cuts have long proved an anathema in Paris. Michel Barnier’s government was toppled in December after left-wing and far-right lawmakers opposed his 60 billion euro ($62.43 billion) belt-tightening push to rein in France’s hefty fiscal deficit.
Credit ratings matter because they gauge a government’s creditworthiness and often drive how much it has to pay to borrow in the international capital markets.
France’s main proxy of that cost – the yield on its benchmark government bonds – is now at its highest in nearly six months at almost 3.3% despite four European Central Bank interest rate cuts since June.
In contrast to the strains in Paris, JPMorgan’s analysts said there is a “high likelihood” that Moody’s catches up with S&P and Fitch this year and upgrades Greece back into the coveted ‘investment grade’ bracket.
There are also “decent chances” that Moody’s upgrades Spain and Ireland, which currently have respective Baa1 and Aa3 ratings, and that smaller rating agency DBRS also upgrades its BBB (high) rating on Cyprus, they added.
($1 = 0.9611 euros)
(Reporting by Marc Jones; Editing by Jan Harvey)
