France’s credit rating was affirmed by Fitch Ratings on an improving budget deficit that still won’t meet European Union limits.
The nation’s long-term foreign- and local-currency grade was affirmed at AA+, Fitch said today in a statement. The outlook is stable, according to the rating company.
“Fitch no longer forecasts the French government will meet the EU threshold for the general government fiscal deficit of 3 percent of GDP by 2015, but any slippage will be modest,” Fitch said.
Investors have largely shrugged off ratings companies’ opinions, reflecting a shift to a focus on in-house analysis. Since France first lost its AAA rating with Standard & Poor’s on Jan. 13, 2012, the yield on France’s benchmark 10-year government bond has dropped to about 1.73 percent from 3.04 percent.
President Francois Hollande is struggling to revive an economy that has barely grown in the past two years, pushing jobless claims to a record of 3.3 million. Having failed to stem a rise in unemployment last year, Hollande is now trying to cut public spending by 50 billion euros ($67.8 billion) and to trim payroll taxes to bolster business confidence and hiring.
“Too many taxes are killing the competitiveness of our country,” Prime Minister Manuel Valls said May 11 on TF1 television. “France has committed to cutting its spending by 50 billion euros. It’s never been done before,” he said.
For Hollande and Valls, the challenge is getting that message through to executives who have so far been reluctant to begin investing in a country with the highest tax-burden among euro area countries.
In the first quarter, French gross domestic product was unchanged, whereas economists expected growth of 0.1 percent, Bloomberg Surveys showed. Investment fell 0.9 percent, its third consecutive quarterly decline.
French Finance Minister Michel Sapin is maintaining the government’s 1 percent full-year growth forecast, which if achieved will be France’s best performance since 2011.
The International Monetary Fund said May 15 that Hollande’s plan to cut public spending goes in the right direction but will be difficult to implement.
“If achieved, these expenditure savings would be remarkable by historic standards,” the Washington-based fund said in a report on France. “Achieving the deficit objectives while delivering on the tax cut commitments leaves no room to deviate from the announced expenditure reductions.”