Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the French Republic (long-term local- and foreign-currency issuer and senior unsecured debt ratings: AA/Stable; short-term local- and foreign-currency issuer ratings: S-1+/Stable) on 18 July 2022.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

For the updated Rating Report accompanying this review, click here.

France’s long-term ratings of AA/Stable are underpinned by multiple credit strengths among which its large and diversified economy driven by high value-added activities strengthening resilience to external shocks. France is also a core euro area member with an important role as architect and guarantor of the European institutional framework, and a key State in preserving and driving the consolidation of European integration. France also has a favorable debt profile and an excellent capital market access. In addition, France has a good record of structural reforms pre-Covid crisis with supply-side policies that have started to address long-standing structural challenges. Finally, France has a sound and resilient banking sector with elevated capitalisation ratios supported by high profitability, which strengthen its capacity to absorb large external shocks.

At the same time, this year’s electoral cycle saw the ruling alliance losing its absolute majority at the National Assembly. Growing political fragmentation and polarisation could weaken policy predictability and the government’s ability to deliver on its agenda, mostly centered around supply-side measures and social reforms among which pensions. In addition, persistent pressures on public expenditures resulting from countercyclical measures to offset the impact of higher inflation, strong demand for social safety nets, and long-term investments could exacerbate challenges related to the gradual reduction of primary deficits amid a more challenging macroeconomic environment. The government announced its objective to start reducing public debt in 2026, or about one year ahead of the next presidential election, and to lower the fiscal deficit below 3% of GDP in 2027.

France’s main credit challenges relate to: i) high public debt to GDP, sustained primary fiscal deficits, and weak fiscal consolidation record; ii) persistent labour market rigidities undermining a firm decline in unemployment; and iii) growing political fragmentation and polarisation reducing the capacity to materially raise GDP growth potential through a sustained rise in productivity, competitiveness, and employment.

The Stable Outlook represents Scope’s opinion that risks to the sovereign ratings are balanced.

The ratings/outlooks could be upgraded if: i) the medium-term growth outlook improved, underpinned by the effective implementation of structural reforms; and/or ii) sustained fiscal consolidation results in a firm downward trajectory of the debt-to-GDP ratio.

Conversely, the ratings/outlooks could be downgraded if: i) the country’s medium-term growth outlook weakened, for example, due to a fading commitment and/or capacity to implement structural reforms; and/or ii) the fiscal outlook deteriorated further, resulting in a sustained increase of public debt levels over the coming years.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Rating Methodology: Sovereign Ratings, 8 October 2021) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Thomas Gillet, Associate Director.

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