Hung parliament in France complicates policymaking, rating firm S&P says
10:55 am Monday, July 08th, 2024
By Marc Jones
LONDON (Reuters) -A hung parliament in France is likely to complicate policymaking there, credit rating agency S&P Global said on Monday, warning that more debt or a sustained slump in economic growth could trigger another rating cut.
S&P downgraded France at the end of May but the country now faces a hung parliament and difficult negotiations to form a government, after a left-wing surge in elections on Sunday blocked Marine Le Pen’s quest to bring the far right to power.
“Our ‘AA-/A-1+’ sovereign credit ratings on France would come under pressure if economic growth is materially below our projections for a protracted period,” S&P said in a note on the election outcome.
“Or if France cannot reduce its large budget deficit and if general government interest payments, as a share of government revenue, increase beyond our current expectations.”
S&P isn’t due to review its French rating again until Nov. 29 although it can do it earlier if it feels the circumstances warrant it.
Given the split parliament, in which no party came close to having the 289 seats required to secure an absolute majority in Sunday’s election, S&P said the issue was now decision making.
“We anticipate that the resulting government will struggle to implement meaningful policy measures and will face a persistent risk of a vote of no confidence,” it said.
France’s spending already means its general government deficit is not likely to drop below 4% of GDP until 2027, by which point its debt-to-GDP ratio will have ballooned a few more percentage points to 112%.
“In this context, the next government’s approach to public finances, and to economic and budgetary reforms, could be key to determining France’s creditworthiness,” S&P said.
(Reporting by Marc Jones; Editing by Amanda Cooper)
