France’s Economy Faces Key Risk Amid Political Turbulence and Credit Rating Uncertainty
September 11, 2025 — France’s economy goes through a tough period. Political change and credit rating risks make this time hard. The prime minister was recently removed, and protests spread across the nation. Economists and investors now worry about credit rating updates that could push up borrowing costs.
Political Instability and Economic Pressures
Last summer, parliamentary elections did not produce a clear winner. No party or alliance gained a majority, and two governments fell amid disputes about the national budget. This chaos raises fears for France’s budget strength. In 2024, public debt reached 5.8% of its gross domestic product (GDP)—the highest level in the eurozone.
New Prime Minister Sébastien Lecornu must now decide his next steps. He may follow the plan made by his predecessor François Bayrou to cut spending by €44 billion (about $51.5 billion) and raise taxes. The plan calls for removing two public holidays, freezing pensions and welfare benefits, and cutting funds to local governments. These moves have already led to large protests.
Upcoming Credit Rating Reviews: A Key Indicator
Credit rating agencies now check the risk of investing in a nation’s debt. Their reports affect borrowing costs. In the next few months, three agencies will share their assessments:
- Fitch: Scheduled for September 12, 2025
- Moody’s: October 24, 2025
- Standard & Poor’s (S&P): November 28, 2025
These reviews will decide if France keeps its “double A” credit rating. This rating marks low risk and makes French government bonds popular with many investors, especially in Asia.
Potential Impact on Bond Markets and the Economy
Mohit Kumar, Chief Financial Economist for Europe at Jefferies, says a lower rating could hurt bond holders. He adds that losing the double A rating might force investors to sell bonds, which will raise yields—the price France pays to borrow money.
Higher yields lead to more expensive debt payments. This may force the government to tighten the budget even more, which many fear could slow the economy further.
Even with all this talk, bond yields on 2-year, 10-year, and 30-year government bonds have stayed steady for now. This steadiness shows some trust among investors or that they have already priced in these risks.
Deutsche Bank economists describe the upcoming rating changes as a “close call.” They note that a downgrade by one agency is unlikely to cause a sudden rush to sell bonds. Still, all signs point to a weak outlook because of ongoing fiscal and political challenges.
Economists’ Perspectives on Downgrade Risks and Market Stability
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Berenberg Bank’s Chief Economist, Holger Schmieding, sees a downgrade as a possibility but not a surprise. He points out that a negative cycle—where rising yields push the deficit even higher—is unlikely because France’s current account is stable.
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He warns that if snap parliamentary elections give power to groups like the far-right National Rally or the French Socialists, the new policies might hurt the economy. In that case, bond buyers could demand more risk or drop out completely.
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George Lagarias, Chief Economist at Forvis Mazars, trusts the European Central Bank to act as a stabilizing force. Since the ECB is led by a former French finance minister, it can step in to support demand and lower borrowing costs if the market falls under stress. Still, he notes that the bank’s help cannot fix France’s deep fiscal issues. The government will face hard choices when it comes to budget cuts and pension reform.
Looking Ahead: Balancing Stability and Fiscal Responsibility
France’s future depends on managing political change while keeping strict control over its budget. The nation’s ability to maintain its high credit rating will shape its borrowing costs and guide its growth path.
As the credit rating reviews move forward, investors, policymakers, and citizens will watch closely, seeking a steady balance between a stable economy and needed budget changes in an unpredictable political climate.
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