Mobile version
Original Original Original

S&P Says Outlook for France Negative, Holds AA+ Rating

W460

Standard and Poor's held to a downgraded AA+ rating for France and said the outlook remained negative on Friday, four days after Moody's cut its top rating for the country by one notch and warned that more could come.

S&P, which downgraded France from top notch in January, referring to recent French announcements on the economy, said although the government was "determined to carry out budgetary and structural reforms" France's long-term outlook was "negative."

"After flat growth this year, we believe that the French economy will grow by 0.4 percent in real terms in 2013," it said, but expressed concern over "wavering consumption levels, rising unemployment, and decelerating wages."

However, S&P said it thought that the government would press on with important structural reforms despite internal opposition from vested interests.

But it also said that reforms, announced in recent weeks, to spur the competitiveness of French industry, including a corporate tax credit for firms' payrolls, were "useful but insufficient to significantly unlock economic growth potential."

The statement said that "labor and service-sector reforms would be positive for competitiveness, economic growth, and, in turn, sovereign creditworthiness."

This week, rating agency Moody's became the second of the three major ratings agency to cut France's top-notch triple A rating, noting it down to "Aa1".

France has not run a balanced budget since the 1970s.

The S&P statement used a slightly more optimistic tone about the outlook for reforms being carried through than had Moody's.

Moody's said that although recent announcements in France went in the right direction, a legacy of 20 years of difficulty by successive governments in reforming the economy hung over the outlook.

The economy has been stumbling along at almost zero growth for about a year but in the last quarter rallied to show a gain of 0.2 percent, the same level as in Germany where the economy had been resilient but has been hit by a slowdown in business activity.

The third main rating agency, Fitch, still gives France a top-notch rating but has said it will take another look at how France is doing.

Ratings are vital tools for vast sectors of the financial and investment industries since they assist investors in categorizing investments by class of risk.

Contracts between investment funds and their savers, and investment principles for insurance companies, mean that as debt bonds issued by a country are downgraded they may fall step by step out of the criteria permitting an investor to invest in the instruments affected.

Comments 0