France: Political Uncertainty Weighs on Public Finances and Funding Conditions

Note: dotted line refers to President Macron calling early legislative elections. Source: Macrobond, Scope Ratings.

Resilient Economy Exposed to Political Paralysis

Despite the political uncertainty, France’s economy remains resilient with real GDP growth better than expected in Q2 2024, underpinning our revised forecast of 1.0% growth this year, up from of 0.8%, and in line with the 1.1% in 2023. Buoyant private consumption amid lower inflation and improving real incomes is supporting growth.

Moreover, France benefits from highly liquid debt markets, a favourable public debt profile, and safe-haven inflows of investors’ “flight to quality” during times of crisis. Still, despite these credit strengths, progress on supply-side reforms and spending cuts are needed to ensure government debt returns to a firm downward trajectory from the 110.6% of GDP level in 2023.

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Thomas Gillet is a Director in Sovereign and Public Sector ratings at Scope Ratings GmbH, and primary analyst on France’s sovereign credit rating. Brian Marly, a senior analyst at Scope, contributed to drafting this comment.