Moody's keeps France at Aa3 with negative outlook, avoiding a downgrade

A downgrade that did not come

Moody's kept France's sovereign debt at Aa3 on Friday, 23 October, and left the outlook negative. The agency took no rating action, so the grade stayed where it was even though experts had judged a cut probable. The hold came as a general surprise. The rating sits seven notches above junk and on a par with the United Kingdom, and it keeps France at what is described as its last double-A, while Fitch and S&P both rate the country A+.

What Moody's says

Moody's said the Aa3 rating assumes that a 2027 budget reducing the deficit is adopted, and that financing costs and social tensions ease slightly in the coming months. The agency described France's economy as prosperous and diversified, backed by competent institutions, but it flagged high public debt as a central challenge. A divided parliament and widespread protests make effective fiscal measures harder to pass, according to Moody's. The agency expects debt to exceed 120% of GDP in 2027, while a separate estimate puts current debt at 119%. Sustained fiscal effort will be needed beyond the presidential elections in April and May 2027 to consolidate public finances.

Markets and rival ratings

The 10-year government bond yield crossed 5% on Wednesday, 21 October, for the first time since 2002. The spread against Germany stayed above 170 basis points on Friday, compared with about 70 points at the start of the year, the highest since 2011. Fitch kept France at A+ with a stable outlook in late August, shortly before protests broke out. In September Scope cut its long-term rating to A+ and moved the outlook from negative to stable, citing rising debt, high deficits and limited progress on structural reforms. Investors have lost confidence that the government can pass a budget that restores public finances, and a deficit expected above 5.4% of GDP adds to the pressure.

Deficit, inflation and April's decision

In April Moody's kept the rating even though conditions it had flagged appeared to be met, including the suspension of the pension reform. At that point the agency noted the 2025 deficit of 5.1% of GDP was below its forecast, which made a 5% target for 2026 more reachable. It had then expected 1% growth and 1.4% inflation for 2026. The deficit has since worsened, and inflation climbed to 3.1% year on year in September. INSEE has also sharply cut its growth forecast. Moody's had earlier listed a weakening of the legislature's capacity to meet the country's credit challenges, persistent difficulty in cutting the deficit, and a lasting pause or reversal of the pension reform as factors that could lead to a downgrade.

Government response

Prime Minister Sébastien Lecornu wrote on X that the decision contradicts the pessimistic predictions of many experts and of those speculating about French debt. Protests have unsettled the country since late August, and the 2027 budget plan the government presented has not yet been voted. The rating decision leaves the government with a narrow window to pass that plan before the presidential campaign begins.