UPDATE 1-Moody's lowers outlook to 'stable' on France's ratings

(adds background on French economy, yellow vest protests)

Feb 21 (Reuters) – Moody’s Investors Service on Friday downgraded outlook on France’s ratings to stable from positive, citing insufficient measures to manage a sustainable and clear downward trend in the country’s public debt ratio.

France’s fiscal strength will not improve to the extent that the rating agency envisaged when assigning the positive outlook on the Aa2 rating in May 2018, Moody’s said in a statement.

The French economy unexpectedly shrank in the final quarter of last year as manufacturing output slumped in the face of strikes over an unpopular pension reform, putting more pressure on President Emmanuel Macron. French Finance Minister Bruno Le Maire considered the slowdown temporary.

Moody’s also highlighted it is unlikely for the French government to reach its own fiscal targets in the remainder of the government’s term, given the continued high level of social discontent which was at the heart of the “yellow vest” protests.

The yellow vest protests, named for the high-visibility jackets worn by demonstrators, erupted in November 2018 over fuel price hikes and the high cost of living.

The ratings agency affirmed France’s ratings at Aa2 based on the country’s progress in its economic reform programme.

Moody’s said that despite the high levels, France’s public debt is highly affordable and will likely remain so even when policy rates start rising.

France’s susceptibility to political or external shocks is very low, the agency added. (Reporting by Shivani Singh in Bengaluru; Editing by Shailesh Kuber)

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