France loses triple a credit rating

Moody’s Investors Service has stripped France of its top credit rating after citing the country’s stalling economic growth and the ongoing eurozone crisis.

France loses triple a credit rating

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The agency has downgraded France’s government bond rating by one notch from Aaa to Aa1. The country’s negative outlook has also been retained, meaning another downgrade is possible.

Offering reasons for the downgrade, Moody’s said: “France’s long-term economic growth outlook is negatively affected by multiple structural challenges, including its gradual, sustained loss of competitiveness and the long-standing rigidities of its labour, goods and service markets.

“France’s fiscal outlook is uncertain as a result of its deteriorating economic prospects, both in the short term due to subdued domestic and external demand, and in the longer term due to the structural rigidities noted above.”

In addition, the agency said predictability of the country’s resilience to future shocks stemming from the eurozone crisis is “diminishing” owing to the growing risks to growth, fiscal performance and cost of funding.

“France’s exposure to peripheral Europe through its trade linkages and its banking system is disproportionately large, and its contingent obligations to support other euro area members have been increasing,” Moody’s added.

“Moreover, unlike other non-euro area sovereigns that carry similarly high ratings, France does not have access to a national central bank for the financing of its debt in the event of a market disruption.”

However, the agency noted that France remains “highly rated” because of its “significant credit strengths”, including a large, diversified economy and strong commitment to structural reforms and fiscal consolidation.

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