French snap elections are 'credit negative', warns Moody's

(Sharecast News) - Credit ratings agency Moody's has said that president Emmanuel Macron's decision to call for a snap election is credit negative for the French economy and increases upside risks to the country's growing debt pile. Macron on Sunday night called for a surprise snap election in response to his party suffering a heavy defeat in the European Parliament elections that resulted in the advance of Marine Le Pen's far-right National Rally party.

"The winner of these elections is unlikely to have an absolute majority in the national assembly. Policy inertia is a credit risk given the fiscal challenges the next government will inherit," Moody's said in a report late on Monday.

France's general government debt-to-GDP ratio is already the third highest in the eurozone after Greece and Italy, with the government not reporting a primary budget surplus since 2001.

Moody's currently has an Aa2 rating with a "stable" outlook, though this could be downgraded to "negative" if the debt situation worsens.

Its comments followed a downgrade of France by fellow agency S&P Global two weeks ago, from AA to AA-.

Government debt in France is currently at 109% of GDP, which remains elevated by historic standards, and forecasts are that budget deficits will continue to grow over the coming three years.

Meanwhile, real economic growth is expected to average just 1.2% over 2024 to 2027, up marginally from the 0.9% GDP expansion in 2023.

In its ratings cut on 31 May, S&P Global said it expects debt to rise to 112.1% of GDP by 2027 due to higher-than-planned "budgetary slippage", which it said was a result of lower-than-expected tax revenues and high levels of spending relative to GDP - "the highest in the EU and among the highest across all sovereigns we rate".