France’s economic outlook downgraded as UK looks to overtake

France’s credit outlook has been cut to ‘negative’ by ratings agency Standard and Poor’s due to a struggling recovery and lack of reform

French president Francois Hollande (GETTY IMAGES)

France’s ailing economy has been delivered another blow as ratings agency Standard and Poor’s lowered its outlook from “stable” to “negative,” saying its financial recovery is “elusive.”

France’s credit rating remains at “AA” – the third highest rating – though S&P indicated that could change in the next two years if France’s fragile financial situation worsens.

The ratings agency expects government deficits will take up an increasingly large portion of the country’s GDP, and has lowered its growth forecast from 2.5 per cent by 2017 to 2 per cent.

S&P’s decision comes after economic projections from the International Monetary Fund that said Britain would overtake France as Europe’s second biggest economy by 2015.

Britain, which has an “AAA” credit rating and a “stable” outlook according to S&P, is expected to grow 3.2 per cent this year and 2.7 per cent in 2015 compared to France’s predicted growth of 0.4 per cent and 1 per cent.

Those growth projections would put the UK economy at £1.9 trillion, and France at £1.8 trillion.

The situation is not so dire at the moment, S&P said, pointing to France’s high income per capita and productivity, and the recovering competitiveness and profitability among French companies.

France finance minister Michel Sapin said in a statement: "We will pursue the needed reforms, to boost our medium term growth prospects

"French debt is one of the surest and most liquid in the world, with debt levels very much contained.”

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The key problem for the French economy is political, with S&P sceptical as to whether the government can enact the reforms necessary to spur growth.

France’s credit rating was downgraded to “AA” in November 2013, but that remains a strong indication of the country’s economy strength, underpinned by low-levels of household debt and high levels of private-sector domestic savings.