Fitch Ratings has upgraded France’s credit rating to AA, citing the country’s strong economic recovery and commitment to cutting its debts. The global credit ratings agency also revised up France’s outlook to stable from negative. However, the agency warned that “social and political pressures illustrated by the protests against the pension reform will complicate fiscal consolidation.”
Fitch said France’s economy, the euro zone’s second-biggest, would expand by 0.8% this year, in line with the euro zone average but below the agency’s 1.1% growth forecast in its last review in November. The French economy grew by 0.2% in the first quarter, despite a series of strikes against the government’s pension bill.
French Finance Minister Criticizes Fitch’s Decision
French Finance Minister Bruno Le Maire criticized Fitch’s decision, saying that the agency was underestimating the positive impacts of the government’s plans to reform and strengthen the economy. He also reaffirmed France’s commitment to cutting its debts.
Le Maire pointed out that France had already implemented several structural reforms, including labor law changes and tax cuts for businesses, which had boosted the economy. He also highlighted the government’s plans to simplify France’s complex pension system, which he said would lead to greater fairness and social justice.
Fitch’s Warning About Fiscal Consolidation
Despite upgrading France’s credit rating, Fitch warned that social and political pressures in the country could complicate fiscal consolidation. The agency cited the protests against the government’s pension reform, which sparked nationwide strikes and protests last year.
The French government has faced opposition from trade unions and some members of the public over its plans to reform the pension system, which it says is necessary to address the country’s growing pension deficit. Critics argue that the changes will lead to longer working hours and lower pensions for some workers.
France’s Economic Recovery
France’s economy has been recovering strongly from the Covid-19 pandemic, with GDP returning to pre-crisis levels in the second quarter of this year. The government has implemented a range of measures to support businesses and households during the crisis, including tax breaks, subsidies, and loans.
The country’s unemployment rate has also been falling, reaching a ten-year low of 7.7% in the second quarter of this year. However, inflation has remained stubbornly high, with consumer prices rising by 1.9% in August, above the European Central Bank’s target of 2%.
Conclusion
Fitch’s decision to upgrade France’s credit rating reflects the country’s strong economic recovery and commitment to cutting its debts. However, the agency’s warning about social and political pressures in the country highlights the challenges that the government still faces in implementing its reform agenda. With inflation remaining a concern, the government will need to balance the need for economic stimulus with the need for fiscal discipline in the coming months.
