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France loses triple-A rating: Fitch

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France loses triple-A rating: Fitch

On Friday France joined the long list of governments to lose their top credit rating, as global rating agency Fitch downgraded the French Republic from AAA to AA+. The global benchmarking agency cited lack of growth and large accumulation of debt as the primary reasons for the downgrade. Fitch was the last of the major credit rating agencies to uphold France’s Triple-A status. On Friday it joined Moody’s and Standard & Poor’s in removing France from the shrinking list of Triple-A governments.

France has experienced consecutive quarters of decline, as the economy contracted by 0.2 percent in 2013 Q1 and 0.3 percent in 2012 Q4. French GDP has contracted three times in the past four quarters, as the economy remains under considerable pressure. The country’s austerity nosedive has pushed it deeper into recession, as the government tries to balance its budget.

The French economy is battling rising unemployment, tighter credit, higher taxation and lower redistribution benefits, pushing it toward its third recession since financial turmoil gripped the globe in 2008. The employment situation continues to worsen, with unemployment topping 10.4 percent in Q1, a 15-year high. Industrial production also declined by 0.4 percent in May, as manufacturing output continues to decline for the Eurozone’s second largest economy. Consumer spending was also down in the first quarter, with total domestic expenditure weighing down economic growth.

In a statement on Friday Fitch said that budget risks are among the biggest concerns, with weak growth projections and the ongoing Eurozone crisis contributing to France’s underlying fiscal problems. The economy has barely grown in more than two years, and projections from the IMF show that French GDP is expected to shrink 0.2 percent this year.

In January 2012 Standard & Poor’s cut France’s Triple-A rating to AA+. Moody’s followed suit in November of the same year, reducing France from Aa1 to Aaa. With the last of the big three rating agencies cutting France’s credit score, we may witness a structural shift in how investors approach the Eurozone’s second biggest economy. However, investors have grown weary of credit scores following the 2008 sub-prime mortgage crisis. If anything, the recent downgrade raises awareness of France’s economic situation, which could prompt investors to think twice before doing business with the French government.

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