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France's Debt Path Worsens as Borrowing Costs Rise, Goldman Sachs Says
The bank now sees France needing a 1% primary surplus to stabilize its debt ratio and has raised its debt forecast, while flagging early signs of fiscal reform momentum ahead of next year's elections.
Key points
- Goldman Sachs raised its forecast for French public debt to 125% of GDP by the start of the next decade, from 123% previously.
- The bank estimates France will eventually need a 1% primary surplus to stabilize its debt ratio, a feat rarely achieved in recent history.
- Polls show economic and fiscal issues have risen to the top of voters' concerns, and both Marine Le Pen and Edouard Philippe have begun making the case for reforming France's fiscal framework.
France's public debt trajectory is becoming harder to manage as deficit reduction stalls and borrowing costs climb, with Goldman Sachs now estimating the country will eventually need a primary surplus equal to 1% of GDP to stabilize its debt-to-GDP ratio — a level rarely sustained in recent history.
The revision reflects the lack of progress in reducing the deficit and the recent increase in borrowing costs, which together have made the debt path more challenging. Goldman Sachs said the longer public debt remains high and increasing, the more likely France is to face durably higher borrowing costs, creating a self-reinforcing loop in which higher debt entails higher rates, lower growth and ultimately even higher debt.
Against that backdrop, the bank pointed to more encouraging signs in the French fiscal debate. Recent polls suggest economic and fiscal issues have risen to the top of voters' concerns, with a large majority in favor of reducing public debt, the deficit and spending. Both Marine Le Pen and Edouard Philippe — whom polls see as the favorites to become president — have started making the case for reforming France's fiscal framework.
Goldman Sachs said it is also watching several factors in the run-up to next year's elections: Jean-Luc Mélenchon's performance in second-round polls, given he has long downplayed fiscal concerns; Marine Le Pen's odds of winning a parliamentary majority, which polls currently put at 60% if she is elected president; and information regarding Rassemblement National's economic policy plans.
