Fitch: Fiscal Paths of Western European Countries Continue to Diverge

Fitch: Fiscal Paths of Western European Countries Continue to Diverge. The rating agency Fitch announced that the economies of Western European countries have, on the whole, maintained their resilience despite ongoing external challenges. However, governments' fiscal policies and public debt trends continue to follow different paths. Fitch says the dynamics of the government debt-to-GDP ratio remain the most important factor

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The Fitch Ratings Institute announced that the economy of Western European countries, despite the continuation of external challenges, has generally maintained its resilience; However, governments' fiscal policies and their public debt changes continue to follow different paths.

Fitch says the dynamics of the ratio of government debt to GDP is still the most important factor determining the credit ratings of countries in the region.

According to the forecast of this institution, by the end of 2028, the public debt ratio of six member countries of the euro zone, including France, Italy and Spain, will exceed 90% of GDP; In contrast, about half of the countries in this region will have a lower debt ratio, less than 60% of GDP.

Fitch expects the public debt ratio of the 12 eurozone member countries, including France and Germany, to increase during 2026-2028; While this ratio will remain constant or decrease in 9 other countries.

In 2026, cost pressures on the budgets of most countries in the region have increased. The most important factors of this trend are energy subsidies, increase in defense costs, gradual growth of debt interest costs and expenses related to demographic changes.

Fitch predicts that Germany's budget deficit will increase due to increased infrastructure and defense spending. In contrast, Cyprus, Greece and Portugal are expected to continue to outperform forecasts and expectations.

The sharp jump in bond yields since the start of the US-Iran war may overstate the immediate risk to budgets given the relatively long-term average maturity of government debt, Fitch said.

However, higher bond yields continue to increase medium-term fiscal pressures and reduce the safe margin of sovereign credit ratings. In France, a significant increase in the spread of the country's bond yields with benchmarks indicates a weaker financial position and uncertainties surrounding the 2027 elections.