S&P cuts France’s outlook to ‘negative’ on rising budgetary risks

(Reuters) -Ratings agency S&P Global cut France’s outlook to “negative” from “stable” on Friday, reflecting its view of rising risks to the country’s public finances and the resulting fiscal space reduction.

The downgrade comes amid France’s already large general government debt, an implementation risk associated with its structural reform agenda, a wider economic slowdown and the European Central Bank’s monetary tightening, S&P said in its report.

The country’s slowing economy and government measures to cushion households and businesses from energy inflation is expected to weigh on public finances, the ratings agency said.

S&P said it believes the rise in energy prices since the Russia-Ukraine war may be a much longer-lasting shock to European economies than the temporary fall in demand triggered by the COVID-19 pandemic in 2020.

Ratings agency Moody’s, in its most recent rating action, affirmed France’s rating at AA2, with a stable outlook.

In September, the French government forecast that public debt will hover around 111.5% of GDP until 2026 before easing..

The finance ministry forecast earlier that the economy would grow 2.7% this year before slowing to 1% next year, while the central bank expects 0.8% in 2023 at best.

The agency affirmed France’s sovereign credit rating at “AA/A-1+”.

(Reporting by Shreyaa Narayanan in Bengaluru; Editing by Krishna Chandra Eluri and Shailesh Kuber)