Scope considers the sovereign credit of France to be strong but highlights challenging trends

Scope Ratings noted that France is one of the wealthiest economies in the world, displaying a highly diversified economic structure, adding that it has weathered the financial and sovereign crisis reasonably well.

Its private sector, especially households, is not overleveraged, indicating a quite tempered reliance on credit growth in the pre-crisis years. Moreover, the government enjoys a very low cost of funding, making its debt servicing highly affordable.

France’s healthy demographics with its growing labour force, which distinguishes it from other major euro area economies, could contribute positively to the country’s economic growth and alleviate the pressure on public finances.

At the same time, Scope noted that a number of structural issues – in particular an insufficient degree of competiveness, relatively rigid markets for labour, goods and services, as well as an inflated public sector – have contributed to the economic slowdown of recent years.

This slowdown is combined with increasing public indebtedness, the trajectory of which is unlikely to stabilise, let alone decelerate, without deep structural reforms for the public sector as well as for the economy as a whole.

Economic restructuring touches so many vested interests that multi-sector reforms launched by the current government may well remain incomplete or be watered down. In turn, the prospects of a reversal of the trend in public finances, which undermines the country’s creditworthiness, are uncertain.

The report is not aimed at assigning a credit rating to the French sovereign. Scope Ratings has stated publicly that it does not plan to assign public ratings to sovereigns. However, the agency stated that it deems the analysis of France’s credit fundamentals to be important for its rating assessments of various issuers domiciled in the country.