Standard & Poor's lead analyst for France said that France needs to deliver promised budget cuts if it wants to avoid a further credit rating downgrade.
S&P, which stripped France of its coveted AAA rating in January 2012, could confirm the current AA+ rating if the public debt ratio looked set to stabilise, but analyst Marko Mrsnik says it remains to be seen if France can achieve that in 2015. "We take on board expectations that in the 2014 budget there will be additional measures that will move the position towards smaller deficits", Mrsnik said.
With these forecasts underpinning the rating, one of the main triggers for a downgrade would be if "economic growth prospects deteriorate further or the economy is threatened by continuing rigidities in the labour market and services sector". S&P has said that it could firm up its current rating and change the outlook to stable if deficit-cutting measures meant France's debt ratio stabilised in the next two to three years.
The government forecasts that its debt-to-GDP ratio will start shrinking in 2015, dropping to 93 per cent from 94.3 per cent in 2014 and 93.6 per cent in 2013. "We see the French general government debt increasing this year and next ... It remains to be seen whether it can stabilise in 2015", Mrsnik said.
Asked whether the European Commission's proposal to extend France's budget deficit target by two years would affect the rating, Mrsnik said the firm would take into account any new French policies.
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