Moody's Keeps France's Credit Rating Unchanged

By Don Nico Forbes and Elias Schisgall

Moody's Ratings kept France's credit rating unchanged on Friday, despite a steady rise in its debts and the political fragmentation that has made it difficult to rein in borrowing.

The agency maintained France's rating at Aa3, citing the country's diversified economy and strong public institutions. The agency said the country's outlook remained negative, however, driven by political instability that could challenge efforts to address its fiscal pressures.

"A significant and sustained fiscal effort will still be needed beyond the presidential elections of April and May 2027 to bring France's public finances onto stronger footing and stabilise a debt burden that will exceed 120% of GDP in 2027," Moody's said Friday.

The Aa3 rating assumes that France successfully adopts a deficit-reducing budget for 2027, the agency added.

Moody's said this was not a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future.

The decision leaves Moody's rating of France above those of peers Fitch Ratings and S&P Global Ratings, which cut the country to A+ in 2025, citing worsening public finances and political instability. A+ is one grade below Aa3 on the agencies' respective scales.

In late 2024, Moody's downgraded France from Aa2 to Aa3 amid concern over the country's fiscal outlook.

France's rating remains two grades below the U.S. and three below Germany, the eurozone's largest economy. It is still above Japan, Italy and Spain, and level with the U.K.

The decision to hold France's credit rating could ease pressure on borrowing costs by reassuring investors that the country's fiscal outlook hasn't deteriorated as much as feared. Still, the relief may be limited amid persistent concerns over France's public finances and political uncertainty.

S&P is scheduled to conduct the next review of France's credit rating on Nov. 27.

France's fiscal position has come under renewed market scrutiny in recent weeks amid a rise in yields on government bonds around the world driven partly by the energy shock that has accompanied the war in Iran.

Prices of bonds issued by the French government have fallen more sharply than those issued by its peers, with the premium over German borrowing costs rising to 170 basis points-levels last seen during the eurozone debt crisis. As a result, France has faced higher borrowing costs than Italy and Greece.

France's budget deficit is expected to reach around 5.4% of gross domestic product this year, well above the eurozone average and the European Union's 3% limit, while public debt is approaching 120% of GDP. And concerns are being compounded by anemic growth. The International Monetary Fund expects the French economy to grow just 0.4% this year, compared with 1.1% for the eurozone.

French business activity tumbled in October despite continued resilience in the wider eurozone, according to a survey published by S&P Global on Friday.

France relies heavily on foreign investors to finance its borrowing. Almost 55% of French debt was held overseas last year, according to European Union data, compared with 31% in the U.S. and 13% in Japan. A loss of confidence among international investors could therefore put additional pressure on borrowing costs.

After snap elections in 2024 produced a hung parliament, successive governments have struggled to pass budgets and implement fiscal reform.

With the 2027 presidential election approaching, investors have little certainty that the next government will command the parliamentary support needed to stabilize France's debt. The fiscal proposals of far-right leader Marine Le Pen, currently ahead in the polls, and left-wing leader Jean-Luc Melenchon, have also raised concerns about the direction of policy.

Some economists have warned that without significant spending cuts, France's problems could ultimately threaten the wider currency area, recalling the Greek debt crisis in the early 2010s.

But others argue that the 21-nation currency area is better equipped to deal with distress than it was in the early 2010s, with tools such as the European Central Bank's Transmission Protection Instrument allowing for the purchase of government bonds in certain circumstances.

Write to Don Nico Forbes at don.forbes@wsj.com and Elias Schisgall at elias.schisgall@wsj.com

(END) Dow Jones Newswires

October 23, 2026 17:18 ET (21:18 GMT)