Moody’s Leaves France at Aa3 With a Negative Outlook as Debt Heads Past 120% of GDP

Moody’s Ratings left France’s credit rating unchanged at Aa3 on Friday, Oct. 23, completing a periodic review that most analysts had expected to end in a downgrade, and kept the outlook on the rating negative.

Moody’s maintained the Aa3 rating on Friday, citing France’s diversified economy and strong public institutions. The outlook remained negative, driven by political instability that could challenge efforts to address the country’s fiscal pressures. The agency was explicit about what the decision was not: it said this was not a credit rating action and is not an indication of whether a credit rating action is likely in the near future. The rating itself rests on an assumption — that France successfully adopts a deficit-reducing budget for 2027.

“A significant and sustained fiscal effort will still be needed beyond the presidential elections of April and May 2027 to bring France’s public finances onto stronger footing and stabilise a debt burden that will exceed 120% of GDP in 2027,” Moody’s said. That is the core of the hold: the rating survives this review, but the path Moody’s describes requires fiscal work extending beyond the 2027 elections, from a political system that has struggled to pass budgets since the snap elections of 2024 produced a hung parliament.

A hold that leaves Moody’s above the other agencies

The decision leaves Moody’s rating of France above those of its peers. Fitch Ratings and S&P Global Ratings cut France to A+ in 2025, citing worsening public finances and political instability, and A+ is one grade below Aa3 on the agencies’ respective scales. Moody’s own last move was a downgrade: in late 2024 it cut France from Aa2 to Aa3 amid concern over the fiscal outlook. France’s rating remains two grades below the United States and three below Germany, the eurozone’s largest economy; it is still above Japan, Italy and Spain, and level with the United Kingdom. The next scheduled test comes quickly: S&P is scheduled to conduct the next review of France’s credit rating on Nov. 27.

The market had priced in a cut

None of that relief was the expected outcome when the day began. The review was due after United States financial markets closed, at 2000 GMT on Friday, and most analysts expected Moody’s to cut the Aa3 rating, which has carried a negative outlook since October last year; a downgrade would have brought Moody’s into line with S&P and Fitch. In the pre-decision trading that priced that risk, the premium over German borrowing costs rose to 170 basis points, at levels last seen during the eurozone debt crisis, and France faced higher borrowing costs than Italy and Greece. On Thursday the risk premium on French debt over German debt hit its highest in 15 years, and France’s 10-year yield hit 5.14%, its highest since July 2002. Those levels were set before the decision and are reported here as the backdrop to it, not as a reaction to it.

Debt near 120% of GDP, growth near a stall

The fiscal arithmetic behind the negative outlook is stark. France’s budget deficit is expected to reach around 5.4% of gross domestic product this year, well above the European Union’s 3% limit, while public debt is approaching 120% of GDP. Growth offers little offset: the International Monetary Fund expects the French economy to grow just 0.4% this year, compared with 1.1% for the eurozone. And the holder base leaves France exposed to exactly the confidence question a rating review poses: almost 55% of French debt was held overseas last year, compared with 31% in the United States and 13% in Japan, so a loss of confidence among international investors could put additional pressure on borrowing costs.

The same day brought fresh evidence of the strain in the real economy. French business activity unexpectedly contracted in October, marking a quick reversal from September’s growth, in the flash purchasing managers’ survey published Friday by S&P Global. The composite flash PMI fell to 48.4 in October from 51.1 in September, below the 50.5 reading expected in a Reuters poll, with services at 48.4, down from 51.2, and manufacturing at 49.3, down from 50.6. A reading below 50 shows a contraction in activity. Surveyed businesses tied the decline — the sharpest decline in demand for French goods and services since May — to heightened political uncertainty and economic pressures.

What to watch next is whether the assumption inside the Aa3 rating holds. France still has to adopt the deficit-reducing budget for 2027 that the rating presumes, in a budget process that currently targets a deficit of 5% of output for 2027, and further protests are planned for Saturday, Oct. 24, before S&P’s review on Nov. 27 and the presidential elections of April and May 2027. Moody’s has not said a rating action is likely in the near future — but with debt set to exceed 120% of GDP in 2027 on its own account, the negative outlook says the next move, whenever it comes, is still pointed down.