Tuesday, 28 May 2013

France and the ratings agencies

Three articles in the online May 27 issue of La Tribune won't bring much joy to people worried about the Eurozone's economic outlook and its ongoing potential for disruption of global financial markets.

The High Council for the Public Finances - maybe there's a more elegant translation of the Haut Conseil des Finances Publiques, but you get the drift - has trolled through the revised 2012 national accounts published by INSEE, the French statistical agency, and has established that the nominal fiscal deficit was 4.8% of GDP (worse than the previously thought 4.5%), and that the underlying structural deficit was 3.8% (up from the previously estimated 3.5%). The good news was that the 2012 figures were better than 2011's: the bad news (and this is my view, not the Council's) is that the improvement took place under previous management (Sarkozy's).

And we heard from both major ratings agencies.

S&P is expecting a poor economic outlook (-0.2% fall in GDP this year, +0.6% growth in 2014), fiscal deficits of 3.8% of GDP this year and 3.3% in '14, and says it remains to be seen if debt will stabilise in 2105 (the government's projections are debt/GDP of 93.6% in '13, 94.3% in '14, and 93% in '15). It also says would threaten France's credit rating, and its own assessment will depend on how France deals with its main reform challenges, and it mentions rigidities in the labour market and the services sectors.

Moody's has the same hymn sheet: GDP down this year (-0.4%), weak recovery in '14 (+0.5%), and a question mark over structural reform. It gives credit for some recent labour market reforms, but notes that we haven't yet seen what their impact has been, and it says its negative outlook on France's credit rating reflects its "worry on the loss of competitiveness of the country, on its fragmented labour market, and its budgetary situation".

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