Ratings agency judges French government optimistic on jobs, budget deficit

Standard and Poor’s (S&P) on Friday maintained its AA rating for France and judged the Socialist government too optimistic over prospects for the budget deficit and employment. A US-based business consultancy has blamed France’s competitiveness deficit on slow growth in productivity over the last 10 years.

Prime Minister Manuel Valls (L) and Finance Minister MIchel Sapin announce their plans to tackle France's economic problems Reuters/Philippe Wojazer

S&P has rated France AA – its third highest rating - since November 2013.

There was uproar when the agency downgraded the country from AAA at the beginning of 2012, although a predicted rise in interest rates on loans failed to materialise.

Friday’s maintenance of the AA had no significance on 10-year lending rates at opening on Friday.

S&P welcomed the government’s cuts in employers’ social security contributions, praised it for not raising taxes on business and said that the cuts being implemented by Prime Minister Manuel Valls’s government could boost medium-term competitiveness and growth.

But it judged government forecasts on the budget deficit and jobs optimistic.

The deficit, which Paris has pledged to bring below 3.0 per cent, will be 3.8 per cent of GDP in 2014 and 2.7 per cent in 2017, compared to the government’s prediction of 1.3 per cent in 2017, the agency believes.

It also judges that President François Hollande’s Responsibility Pact may not be enough to revive employment.

A report released on Friday by the Boston Consulting Group (BCG) blames a decline in France’ competitiveness on by the slow pace of improvement in productivity, rather than labour costs, the principal target of the government’s measures.

France scored better than Germany in competitiveness rankings in 2004 but has now fallen behind.

The BCG report puts most of the blame on a relatively weak five per cent rise in productivity, compared to 14 per cent in Germany, 20 per cent in the UK and 23 per cent in Spain, although it also classes France as a high-cost exporter, along with Italy, Belgium, Switzerland and Sweden, in an analysis of the 25 countries who are responsible for 90 per cent of world exports.

Three Socialist MPs, Laurence Dumont, Jean-Marc Germain and Christian Paul announced on Friday that they would not vote for the government's cuts package.