Has France Lost Its Sparkle?
Has France lost its sparkle?
Just as confidence in France appeared to be recovering, events took a cinematic turn. Last weekend, thieves broke into the Louvre and made off with a priceless collection of jewels - a scene that could have been lifted straight from the classic Pink Panther film. Whilst news headlines focussed on the theft of the crown jewels, for investors the downgrade of the French credit rating is possibly just as symbolic.
Standard & Poor’s (the international credit ratings agency, S&P) announced a downgrade to France’s sovereign debt from AA to A, adding fresh pressure to the country’s already fragile fiscal outlook. As recently as 2011, France held the desirable AAA credit rating – the highest possible assessment of a government’s ability to repay its debts, and at the time marginally higher than that of the US. Since then, France’s credit rating has been eroded by successive downgrades from all three major credit ratings agencies. What began with the 2010 eurozone sovereign debt crisis has been compounded by domestic political turmoil, most recently the instability following President Emmanuel Macron’s decision to call early elections in the summer of 2024.
France’s gradual slide from the top tier of global creditworthiness to its current, more precarious footing, serves as a reminder that building fiscal credibility can take years but losing it can happen faster than a diamond necklace going missing from the Louvre.
Credit rating of France, by agency*
*The numerical scale on the left-hand axis, ranging from 1 to 10, corresponds to the S&P credit rating scale: 10 represents the highest rating (AAA), 8-9 is AA, 4-7 is A, 2-3 is BBB or BB, 0-1 is B or a junk bond rating.
Source: Artorius, Bloomberg
Treasures lost, confidence found (for now)
Once he has finished capturing the burglars at the Louvre, it’s hard to resist suggesting that Inspector Clouseau may be called in to assist the unfortunate French Prime Minister Sébastien Lecornu, who endured two confidence votes last week. He managed to survive by holding off President Macron’s pension restructuring plan - which would change the state retirement age from 62 to 64 - until after the next 2027 presidential election. This had an abrupt effect on French government bonds (Obligations Assimilables du Trésor or OATS), as the yields of 10-year OATS dipped quickly, which suggests that investors have more confidence in the government’s ability to manage its debt.
Temporary relief for French 10-year OATS
Source: Artorius, Bloomberg
The fine art of deficit management
This short-term relief doesn’t hide the deepening fiscal problems that France faces. Sébastien Lecornu needs the political parties to agree on several actions before 2026 that will keep the current government deficit below 5% of gross domestic product (GDP). However, the current environment makes it particularly difficult to see how the Prime Minister can achieve this without resorting to highly unpopular measures like raising the country’s state retirement age.
Even if the Prime Minister lasts, economic uncertainty will continue. Oxford Economics, a leading global economic research and consulting firm, and S&P expect French debt to rise to 121% of GDP by the end of 2028, and 125% by 2035 (up from 113% in 2024). Meanwhile, economic growth remains subdued, with real GDP having risen by only 0.7% so far this year, highlighting the persistent challenges facing the French economy.
Continental competition
French banks have also mirrored the country’s broader economic underperformance. BNP Paribas, the country’s largest lender, has lagged well behind its European peers such as Spain’s BBVA, Italy’s UniCredit and even the UK’s NatWest, whose earnings and share prices have benefitted from stronger domestic backdrops and more decisive monetary policy tailwinds. French lenders are being held back by slow growth, rising government debt and ongoing political uncertainty. Strict banking regulations (over and above those imposed by the EU) and limited room to raise borrowing costs have also made it harder for them to improve profits. In contrast, banks in Europe and the UK have seen better earnings as higher interest rates and steadier conditions support demand. This gap highlights how France’s weaker economic backdrop is starting to show up clearly in its financial sector.
Earnings take centre stage
In the absence of major US economic data, investors have shifted their attention to corporate earnings, with company results setting the tone for market sentiment. Third-quarter updates have so far been broadly encouraging, with several household names reporting stronger-than-expected numbers. General Motors gained 14.9% after raising full-year guidance, while Coca-Cola rose 4.1% following a clean set of results.
Apple advanced around 4% as early signals suggested stronger-than-anticipated iPhone 17 sales in both the US and China, ahead of its own earnings release next week. By contrast, Netflix fell 5.2% after a one-off tax charge in Brazil weighed on quarterly profits. Tesla also reported higher revenue but a sharp profit decline as price cuts, tariffs and rising AI investments squeezed margins.
Looking ahead, the coming week will bring a series of high-profile results from the ‘Magnificent Seven’, including Apple, Meta, Alphabet, Amazon and Microsoft. These reports will provide investors with fresh insight into whether large-cap technology leaders can maintain their earnings momentum. With valuations still elevated, the next chapter for US equities may rest on fundamentals rather than faith.
Mark Christie
Investment Analyst
*Any feedback provided can be anonymous
Important Information
All expressions of opinion reflect the judgment of Artorius at 24th October 2025 and are subject to change, without notice. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete; we do not accept any liability for any errors or omissions, nor for any actions taken based on its content. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. Past performance is not a reliable indicator of future results. Nothing in this document is intended to be, or should be construed as, regulated advice. Artorius provides this document in good faith and for information purposes only. Reliance should not be placed on the information contained within this document when taking individual investments or strategic decisions.
Artorius Wealth Management Limited is authorised and regulated by the Financial Conduct Authority. Artorius is a trading name of Artorius Wealth Management Limited.
FP20251023001