French and Belgium’s outlooks revised from stable to negative by Fitch and Moody’s respectively over fiscal and political concerns

On Friday 11 October, Fitch revised France's outlook to negative; keeping the rating at 'AA-, while Moody’s ' cut Belgium’s outlook to negative; at ‘Aa3. Both decisions were explained by concerns over public finances (deficit and debt trajector ies ) as well as political uncertainty . Fitch revised France's outlook to negative; keeping the rating at 'AA-'. Contrary to our expectations of a statu s quo , Fitch revised France's outlook to negative; but affirm ing its 'AA-' ra t ing . The agency justified its decision by fiscal and political concerns: Fiscal concerns : Fitch highlights the 2024 fiscal slippage with the public deficit expected at 6.1%, placing the country in a worse fiscal starting position, leading to an upward trend for French public debt over the next couple of years. Fitch included only part of the draft budget law measures, reflecting high political uncertainty and implementation risks, leading the agency to forecast a public deficit at 5.4% in 2025 and 2026 (vs. 5.0% and 4.6% in 2026 for the government , see here our analysis of the 2025 French Draft Budget Law ) as some measures are supposed to be “temporary”. Fitch underlined France’s 2024 public deficit will be almost three times the forecast median deficit of 'AA' category peers. Regarding the excessive deficit procedure ( EDP ) , Fitch stressed that the country has been placed several times under EDP and has a poor record of meeting EU fiscal rules. Political risks : Fitch highlights that the government lacks an absolute majority in a hung Parliament . The agency expects t he budget law to be enacted before year end, but with “ concessions ” . We thought Fitch would wait until early 2025 to change France’s outlook as the last downgrade was relatively recent (April 2023) and as the country achieved to form a government and present a budget in a very short period, despite two problematic fiscal slippages in 2023 and 2024. We now expect Fitch to downgrade France to A+ in 2025, probably in the second semester, especially as Fitch's model assigns France a rating equivalent of 'A+'. Moody’s (Aa2, stable) will review France’s rating on 25 October and S&P (AA-, stable) on November 29. Moody’s cut Belgium’s outlook to negative; confirms rating at ‘ Aa3 Moody’s revised down its view on the country’s Aa3 score to negative from stable, a similar rating to Fitch that revised Belgium’s outlook to negative in March 2023. Moody’s indicated its decision reflects political concerns, identifying some risk that the next government will be unable to stabilize public debt. No government emerged after the June parliamentary elections and the first attempt to form a government failed and negotiations could continue to take time . The agency also mentions fiscal concerns: t he public debt could rise to 110% by 2026 and more than 115% by 2029 according to various estimates (IMF, etc . ) and despite structural adjustments needed as the country is entering EDP . The agency indicated the affirmation of the Aa3 ratings is supported by Belgium's diversified, wealthy, and innovative economy .