Ratings agency Moody’s Investors Service has downgraded France’s government bond rating by one notch from Aaa to Aa1, with the outlook remaining negative.
The move follows Moody’s decision earlier this year to place the Aaa ratings of a number of Aaa-rated European countries – including Germany, Luxembourg and the Netherands – on a negative outlook.
The ratings agency downgraded France’s government debt rating for several key reasons.
Its decision was based on the structural challenges facing the French long-term economic growth outlook, “including its gradual, sustained loss of competitiveness and the long-standing rigidities of is labour, goods and services markets”.
The uncertain fiscal outlook was also given as a reason by the ratings agency, “as a result of its deteriorating economic prospects”. It also highlighted the “diminishing” predictability of France’s ability to weather future eurozone shocks and its “disproportionately large” exposure to peripheral Europe.
However, the Aa1 rating is strongly backed up by its “significant credit strengths” underpinned by a large and diversified economy and a strong commitment to structural reform and fiscal consolidation.
France was stripped of its AAA rating by Moody’s rival Standard & Poor’s in January.