Fitch: France's 2027 Budget Plan Points to a Weaker Initial Fiscal Position

The government's revised forecast for the 2026 budget deficit stands at 5.4% of GDP, exceeding its previous 5% target and Fitch's 5.2% projection in its sovereign credit rating review on August 28. This deviation from fiscal targets stems from falling tax revenues due to weak economic activity […]

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France's high and increasing debt, the political and social environment that makes financial reforms difficult, and the low rate of potential economic growth put pressure on the country's credit rating.

The French government's revised forecast of the 2026 budget deficit is equivalent to 5.4% of GDP; A figure that exceeds the government's previous target of 5% and Fitch's forecast of 5.2% in the evaluation of the country's sovereign credit rating on August 28.

This deviation from the financial goals is caused by the decrease in tax revenues due to the weakness of economic activities and unfavorable conditions of the labor market, along with the increase in debt interest payments. Even if France's economic growth accelerates in 2027, as Fitch forecasts, the new basis for projections will still reflect weaker fundamentals of the government's finances.

The government's updated estimate shows that the budget deficit will reach 6.4 percent of GDP in 2027 if more reform policies are not implemented; A figure that is 0.5 percentage points higher than the previous estimate. This shows that more extensive corrective measures will be needed to stabilize the government's debt level.

The proposed 2027 budget has an ambitious plan that aims to reduce the budget deficit to 5 percent of GDP and adhere to the EU rule on net spending. The program includes 43 billion euros in new savings, equivalent to 1.4 percent of GDP.

Some of these measures are associated with political difficulties; These include freezing public sector wage increases, raising pensions at a below-inflation rate for pensioners above €1,260 a month, and extending the special tax on large companies, although the scope of the tax will be reduced.