Moody's Maintains Negative Outlook On France

(RTTNews) - Moody's Investors Service maintained the 'negative' outlook on the French sovereign ratings, citing the continued reduction in the competitiveness of the economy as well as the risk of a further deterioration in government financial strength.

Nonetheless, the agency confirmed 'Aa1' government bond rating, a notch below the top level.

France's large and diversified economy help to maintain the country's economic resilience, Moody's said. The modest interest rate burden relative to total government revenues also supports the affirmation.

The agency, however, noted that firms are less inclined to invest, particularly in an unfavorable economic environment. Further, France has one of the highest taxation levels among advanced economies.

The competitive issues have led to a gradual erosion of France's export-oriented industrial base and constrain the shock-absorption capacity.

President Francois Hollande commitments to address the deterioration of public finances was evidenced by the announcement of a "responsibility pact" which includes the intention to lower employers' social contributions.

But Moody's expressed concerns about the implementation and efficacy of these policy initiatives.

The rating agency expects general government debt-to-GDP ratio to increase to above 95 percent by the end of 2014. Despite repeated commitments to fiscal consolidation, high budget deficits and its economic growth led to a significant increase in general government debt, it said.

The government plans to bring its budget deficit to 3 percent of GDP next year, while Moody's expects a continued risk of France missing its fiscal targets.