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Growing political obstacles and concerns over fiscal policy have seen credit ratings agencies deliver a double-whammy of outlook cuts to two major Western European economies.
Ratings agency Fitch revised France’s outlook from “stable” to “negative,” citing French Prime Minister Michel Barnier’s challenges in trying to bring down the country’s spiraling debt.
“We now expect wider fiscal deficits, leading to a steep rise in government debt towards 118.5 percent of GDP by 2028,” Fitch said in a statement late Friday.
“France’s new center-right government, led by Prime Minister Barnier, lacks an absolute majority in a highly fragmented parliament and will need to rely on tacit approval from the far right to get legislation approved,” it added.
At the same time, Moody’s Ratings delivered a cut to its rating outlook for Belgium. “The decision to change the outlook to negative from stable reflects the risk that the next government will be unable to implement measures that would stabilize the government debt burden,” Moody’s said.
Belgium has faced political deadlock at various levels of government after federal and regional elections in June, further compounding weak economic growth and a stagnating jobs market.
The ratings agencies’ decisions come as the European Central Bank is expected to cut eurozone interest rates next week amid growing concerns over the EU’s economic prospects, including a sharp drop in inflation last month and slower-than-expected growth in major markets like Germany.
German Economy Minister Robert Habeck on Wednesday revealed that the government in Berlin expects the country’s economy to shrink for a second year in a row — forecasting a contraction of around 0.2 percent after previous predictions of 0.3 percent growth.
