Moody's maintains France's Aa3 credit rating with negative outlook

Moody's has maintained France's credit rating at Aa3, citing strong public institutions and a robust economy as supporting factors. However, the agency assigned a negative outlook, reflecting risks stemming from political and social instability, a fragmented parliament, and an increasing debt burden.

Economic indicators show slowing growth and a widening budget deficit, which reached 5.4% of GDP. While the deficit is projected to decrease slightly to 5.2% next year, the agency noted that the Aa3 rating relies on the assumption that a budget to reduce the deficit will be accepted by 2027.

There is a notable discrepancy between Moody's rating and market sentiment. While the official rating remains high, French 10-year bond yields have surpassed 5%, a level not seen since 2002, and the spread against German bonds has reached record highs. This suggests markets are pricing in higher risk, closer to speculative levels, despite the Aa3 rating. Additionally, Fitch and S&P have already downgraded France to A+.