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Introduction: Standard & Poors expected to rule on France’s credit rating
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
France is bracing for a possible credit rating downgrade today, despite some strenuous efforts by Paris to fend the risk off.
Standard and Poor’s, one of the Big Three rating agencies, is expected to update its assessment of France’s credit-worthiness later today.
Back in December S&P cut France’s outlook to “negative” from “stable”, due to rising risks to the country’s public finances, so it could now cut France’s AA rating – the third-highest notch.
Since December, France’s economy has grown by 0.2% in the January-March quarter, and president Emmanuel Macron has signed a controversial pension reform into law, after wide protests and much bashing of pots and pans on the streets by furious members of the public.
In April, Fitch downgraded France’s sovereign credit rating and warned that Macron’s reform agenda could stall following the battle to increase the country’s retirement age.
And last week another rating agency, Scope, lowered its outlook on France’s credit rating, blaming weakening public finances and risks to Macron’s economic reform agenda.
A downgrade could be embarrassing for Paris, and raise questions about Macron’s efforts to spur growth and reduce a debt burden that has been pushed higher by spending on the pandemic and then subsidising energy costs since the Ukraine war.
The risk of a downgrade on Friday “could be a wakeup call for the markets,” Adam Kurpiel, rates strategist at Société Générale, told Bloomberg, adding:
“We and the rating agencies have been highlighting the weakness in France’s public finances for some time.”
France’s finance minister, Bruno Le Maire, pledged in April to “accelerate France’s debt reduction”. He is aiming to lower the national debt from 111.6% of GDP to 108.3%, by 2027.
By then, Paris hopes to have brought the budget deficit down to 2.9% of GDP, back below the 3% limit set under the European Union’s Growth and Stability Pact.
Earlier this week, La Maire launched an effort to deter S&P from cutting France’s credit rating.
He told public broadcaster France Inter that he made a compelling case to S&P when he met its representatives earlier this week, pledging to be “uncompromising” with the debt reduction plan.
Le Maire pledged:
“We have good arguments to put forth.
Prime minister Elisabeth Borne said on Sunday that Le Maire is in “very close discussions” with S&P.
Borne told Radio J.
“I think there were detailed explanations from Bruno Le Maire to Standard and Poor’s on everything we’re doing to control our public finances and I think that we act in this direction.”
The US, though, can breathe easier about its credit rating today. Last night, the US Senate narrowly passed a bill to suspend the debt ceiling, which should avert the risk of a default that could have wreaked havoc on the US economy and global markets.
The agenda
-
7.45am BST: French industrial production data for April
-
9.30am BST: The latest realtime UK economic activity data
-
1.30pm BST: US non-farm payroll jobs report for May
Key events
In a boost for France, industrial production across the country has picked up – helped by a drop in strike action.
Manufacturing output rose by 0.7% in April, new data from statistics body INSEE shows, while wider industrial output gained 0.8%.
🇫🇷 France French Industrial Production (MoM) (Apr) $EUR
Actual: 0.8% 🟢
Expected: 0.3%
Previous: -1.1%— PiQ (@PriapusIQ) June 2, 2023
Output “bounced back substantially in the manufacture of coke and refined petroleum” – rising by +23.6% in April after a 45.2% plunge the previous month.
That, INSEE said, is because the strikes in refineries were less significant than in March, when protests against president Macron’s pension reforms blocked several French refineries from delivering products.
The health of the US jobs market will also be in the spotlight today, when the latest non-farm payroll is published.
Economists expect a slowdown in hiring last month, with around 193,000 new jobs created, down from 253,000 in April.
A sharp slowdown could deter the US Federal Reserve from raising interest rates again, while a strong NFP could spur them on.
All eyes on the US labour market report this lunchtime, as traders mull over whether the Fed will pause, or skip, in June
Read Related Also: NBA legend Dwyane Wade says he left Florida because of state’s attitude to his transgender daughter
Headline NFP exp. +195k…would expect a print >230k to have hawkish implications, <150k to be interpreted dovishly pic.twitter.com/DL7Uia6usO
— Pepperstone (@PepperstoneFX) June 2, 2023
The question of the sustainability of France’s public debt has moved back into the spotlight, analysts at ING warn.
In a report published yesterday, ING warn it has become “an important issue for the government, the general public and the rating agencies alike in a context of economic slowdown, rising interest rates and a minority government in parliament”.
As they point out, France’s national debt has risen due to recent economic shocks:
Already well above the eurozone average, the ‘whatever it costs’ approach of the government has led to a significant increase in French public debt since the pandemic, rising from 97.4% of GDP in 2019 to 111.6% of GDP in 2022.
Over the period, this represents an increase of 14.2 percentage points, the highest among eurozone countries after Spain. By the end of 2022, France was the fifth country with the highest debt-to-GDP ratio in the eurozone, well above the European target of 60%.
If policy remains unchanged, the government estimates that public debt could continue to rise over the next few years, reaching 114.6% of GDP in 2027.
French president Emmanuel Macron has also been warned that the country can’t afford tax cuts without also trimming spending.
Yesterday, Bank of France Governor Francois Villeroy de Galhau told a conference:
“We need to make a bigger effort on the public finances, we need to be careful about unfunded tax cuts and letting spending grow too quickly,”
Last month, Macron revealed he had asked his government to draw up €2 worth of tax cuts that would benefit the middle class.
Introduction: Standard & Poors expected to rule on France’s credit rating
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
France is bracing for a possible credit rating downgrade today, despite some strenuous efforts by Paris to fend the risk off.
Standard and Poor’s, one of the Big Three rating agencies, is expected to update its assessment of France’s credit-worthiness later today.
Back in December S&P cut France’s outlook to “negative” from “stable”, due to rising risks to the country’s public finances, so it could now cut France’s AA rating – the third-highest notch.
Since December, France’s economy has grown by 0.2% in the January-March quarter, and president Emmanuel Macron has signed a controversial pension reform into law, after wide protests and much bashing of pots and pans on the streets by furious members of the public.
In April, Fitch downgraded France’s sovereign credit rating and warned that Macron’s reform agenda could stall following the battle to increase the country’s retirement age.
And last week another rating agency, Scope, lowered its outlook on France’s credit rating, blaming weakening public finances and risks to Macron’s economic reform agenda.
A downgrade could be embarrassing for Paris, and raise questions about Macron’s efforts to spur growth and reduce a debt burden that has been pushed higher by spending on the pandemic and then subsidising energy costs since the Ukraine war.
The risk of a downgrade on Friday “could be a wakeup call for the markets,” Adam Kurpiel, rates strategist at Société Générale, told Bloomberg, adding:
“We and the rating agencies have been highlighting the weakness in France’s public finances for some time.”
France’s finance minister, Bruno Le Maire, pledged in April to “accelerate France’s debt reduction”. He is aiming to lower the national debt from 111.6% of GDP to 108.3%, by 2027.
By then, Paris hopes to have brought the budget deficit down to 2.9% of GDP, back below the 3% limit set under the European Union’s Growth and Stability Pact.
Earlier this week, La Maire launched an effort to deter S&P from cutting France’s credit rating.
He told public broadcaster France Inter that he made a compelling case to S&P when he met its representatives earlier this week, pledging to be “uncompromising” with the debt reduction plan.
Le Maire pledged:
“We have good arguments to put forth.
Prime minister Elisabeth Borne said on Sunday that Le Maire is in “very close discussions” with S&P.
Borne told Radio J.
“I think there were detailed explanations from Bruno Le Maire to Standard and Poor’s on everything we’re doing to control our public finances and I think that we act in this direction.”
The US, though, can breathe easier about its credit rating today. Last night, the US Senate narrowly passed a bill to suspend the debt ceiling, which should avert the risk of a default that could have wreaked havoc on the US economy and global markets.
The agenda
-
7.45am BST: French industrial production data for April
-
9.30am BST: The latest realtime UK economic activity data
-
1.30pm BST: US non-farm payroll jobs report for May
