France is now expected to have general government gross debt peaking higher at 96% of GDP in 2014. It is only expected to decline gradually over the long-term and should only reach 92% by 2017. Fitch previous projected France’s debt peaking at 94% and then declining more rapidly to below 90% by 2017. France’s debt ratio is significantly higher than the ‘AAA’ median of 49% and ‘AA’ median of 27%.
Fitch also went on to say that the risks to the agency’s fiscal projections are mostly to the downside. Uncertain growth, an ongoing eurozone crisis, a higher debt ratio and other factors are to blame. The economic output and forecasts are now substantially weaker than back when Fitch downgraded France’s ratings outlook to Negative from Stable:
- unemployment rate has also jumped to a 15 year high of 10.9% in May 2013;
- France is expected to remain in the EU’s Excessive Deficit Procedure for a year longer;
- economy to recover less quickly than official projections;
- subdued external demand, weaker competitiveness, high unemployment and fiscal consolidation;
- forecasts are for GDP to contract in 2013 before growing by 0.7% in 2014;
- and the current account was in a deficit of 2.3% of GDP in 2012 and has deteriorated steadily from surpluses a decade ago.
The only good news here is that ratings agency now has a Stable outlook for France. This also ends the likely credit ratings downgrade saga for what is considered to be the second strongest link of the euro, behind Germany.
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