Key take-aways
- Inflation has eased and monetary tightening has paused, yet financing conditions remain materially tighter than in the pre-2022 period. Economic growth has stabilised but remains consumption-led, limiting investment, balance-sheet repair and the pace of credit normalisation.
- Credit risk has been repriced ahead of fundamentals. Listed French corporates continue to screen riskier than regional peers despite stable or improving median leverage, profitability and cash-flow metrics. Rising asset volatility and market-implied leverage, rather than deteriorating solvency, have driven the rise in credit risk.
- Public and private company credit risk has diverged materially. Default probabilities for public firms remain stubbornly high, while private-company default risk has broadly stabilised. In this environment, distinguishing between market sensitivity and underlying balance-sheet fragility is central to credit selection and capital preservation.
FIGURE 1 Listed corporates reprice risk more sharply than private firms
Average one-year probabilities of default (PD), monthly
Data source: Moody’s EDF-X platform as of Jan 2026
Stabilisation without a growth impulse
France enters 2026 in a position of macroeconomic stabilisation rather than recovery. Inflation has eased materially from its 2022–23 peak (Figure 2), allowing monetary conditions to shift away from outright tightening.1 Headline consumer price inflation fell back towards the European Central Bank’s target range during 2024 and remained contained through 2025, reflecting easing energy prices and a gradual normalisation of goods inflation.2 3 However, this disinflationary progress has not translated into a broad-based improvement in growth momentum or business confidence.4 5
Economic growth has remained subdued relative to historical norms and stronger euro-area peers. After stagnating through much of 2024, real GDP growth in France recovered only modestly in 2025. Private investment has remained cautious, constrained by weak demand visibility, higher financing costs relative to the pre-pandemic period, and persistent policy uncertainty.6 As a result, growth has been sufficient to prevent outright deterioration, but insufficient to generate a self-sustaining credit upswing.
FIGURE 2 Inflation easing without growth acceleration
Source: World Bank1
This composition of growth – which has been outlined in Figure 3 – matters for credit risk. Consumption-led stabilisation supports revenues in the near term, but does little to strengthen balance sheets or improve medium-term cash-flow resilience.7 Business investment, which historically underpins productivity growth and margin expansion, has lagged.8 The consequence is an economy that appears stable on the surface, but lacks the momentum required to materially reduce corporate leverage or rebuild buffers organically.
FIGURE 3 Contributions to GDP; Consumption-led stabilisation, weak investment
Source: INSEE9
Labour market conditions have remained relatively resilient. Unemployment has stayed low by historical standards, supporting household incomes and limiting near-term downside risk to consumption.10 At the same time, nominal wage growth has remained firm as shown in Figure 4, particularly in services sectors, reflecting tight labour supply and negotiated wage agreements.11 12 While this has supported real incomes as inflation eased, it has also contributed to sticky services inflation and margin pressure for firms with limited pricing power.13 From a credit perspective, this dynamic favours revenue stability over margin expansion, reinforcing the importance of firm-level cost discipline.
FIGURE 4 Wage growth vs productivity
Source: ECB, INSEE 14 15
Fiscal policy has added another layer of complexity. France’s fiscal position remains structurally weak, with elevated deficits and a rising public debt burden.16 While near-term fiscal consolidation efforts have continued, they have been repeatedly complicated by political fragmentation and contentious budget negotiations. The absence of a clear and durable political mandate has reduced policy predictability, shortening planning horizons for corporates and investors alike.
The interaction between easing inflation, subdued growth and political uncertainty has shaped financial conditions in a non-linear way. Although policy rates have stabilised relative to their 2023–24 peak and market expectations have shifted towards gradual easing, all-in financing costs remain materially higher than during the pre-2022 period.17 For many borrowers, refinancing risk has been deferred rather than eliminated: firms that extended maturities or drew on revolving facilities during the 2022–24 tightening cycle have postponed rather than resolved the challenge of rolling over debt in an environment where all-in borrowing costs remain structurally elevated relative to original issuance terms. This environment rewards firms with strong liquidity buffers and conservative funding structures, while leaving more marginal borrowers exposed to shifts in market sentiment rather than immediate earnings stress.
Taken together, France’s macro backdrop in 2025–26 is best characterised as one of stability without conviction. The economy is not under acute stress, but neither is it generating the growth, investment or policy clarity required to drive a broad-based improvement in corporate credit fundamentals. This is particularly relevant for interpreting market-implied default risk measures. In an environment where uncertainty persists and confidence remains fragile, default risk can be repriced through changes in expectations and risk premia even in the absence of visible balance-sheet deterioration.
Figure 5 illustrates how these macroeconomic conditions have translated into a sustained credit risk premium for French companies compared to their Western Europe peers. Average PDs rose sharply during the 2022–23 tightening cycle and remained elevated up to 2024. However, the gap between France and the regional benchmark widened with French firms priced at a consistently higher level of risk.
FIGURE 5 French company PD levels consistently maintain a material spread above Western Europe’s average
Source: Moody’s EDF-X platform as of Jan 2026
While Figure 5 highlights a common elevation in credit risk across French corporates, it masks crucial differences in how this repricing has occurred across firm types. The sections that follow examine how public and private companies have responded to this environment, showing that variations in market exposure, valuation sensitivity and transmission of uncertainty have led to materially different default risk dynamics despite a shared macro backdrop.
French public companies diverge from Western Europe’s
Default probabilities for listed French corporates have risen sharply since 2022 and remain elevated relative to both historical levels and regional peers as indicated in Figure 6. While the initial increase coincided with the broader euro-area tightening cycle, the subsequent trajectory has been notably more pronounced in France than across Western Europe as a whole. Even as market conditions stabilised through 2024–25, default risk for French public companies has retraced only partially, leaving a persistent gap versus the regional benchmark.
FIGURE 6 The spread between France and Western Europe’s public-company PD levels has been widening
Source: Moody’s EDF-X platform as of Jan 2026
This divergence is not readily explained by a uniformly weaker macro environment. Western Europe has experienced a similar combination of disinflation, higher-for-longer financing costs and subdued growth, yet the increase in market-implied default risk has been more contained outside France. The result is a widening spread between French listed corporates and their regional peers, suggesting that country-specific factors may be playing an increasingly significant role in how risk is priced for public issuers.
The timing of the divergence is also notable. Default probabilities began to rise materially in 2022, as the ECB tightened policy rates in response to surging inflation. This was well ahead of any broad-based deterioration in reported financial fundamentals. France’s average PD peaked in late 2023 at its highest post-GFC level, higher than during the COVID-19 pandemic, and remained elevated through a period when growth and inflation dynamics were broadly comparable across Western Europe. This pattern points to potentially heightened rate sensitivity among listed French firms, rather than a simple reflection of contemporaneous balance-sheet stress.
From a credit perspective, the persistence of relatively high credit risk among public companies matters because listed issuers tend to act as the first transmission channel for shifts in sentiment and risk premia. Their equity valuations and implied asset volatility respond more quickly to changes in the macro and policy environment than those of private firms, and those signals are embedded directly in market-implied default measures such as EDF-X. As a result, public-company default risk can diverge meaningfully from both private-company risk and from near-term accounting indicators.
At this stage, the key observation is not that French public corporates are materially weaker than their peers. However, they are being priced as more vulnerable, a pattern also reflected in the widening of France’s sovereign CDS spreads relative to Western Europe. Understanding whether this reflects forward-looking concerns around refinancing conditions, confidence and policy uncertainty, or an early warning of future balance-sheet pressure, is critical for interpreting EDF-X signals correctly. We will examine these dynamics later in this paper in more detail and explore why market-implied risk for listed French firms has remained elevated despite relatively stable underlying fundamentals.
French private-company PDs remain consistently above Western Europe
In contrast to listed firms, default probabilities for private French corporates have remained comparatively contained over the cycle. While default risk increased through 2022 and early 2023, reflecting the broader tightening in financial conditions, the magnitude of the move was more modest than for public issuers and closely follows Western Europe’s movements, with the spread widening modestly from 2023, consistent with increased rate sensitivity. Since mid-2023, private-company default risk in France has stabilised and, in some periods, edged lower (Figure 7).
FIGURE 7 France’s private-company PD levels consistently remain above Western Europe’s average
Source: Moody’s EDF-X platform as of Jan 2026
The gap between French private corporates and their Western European peers has remained broadly stable throughout the period. Private-company default probabilities in France have tracked the regional benchmark closely, suggesting a more uniform aggregate response to macro and financial conditions than listed firms. Although private companies are, on average, riskier than their regional counterparts, publicly listed firms exhibit higher default risk due to their heightened vulnerability to market sentiment, geopolitical risk and tariff uncertainty.
From a credit perspective, the relative stability of private-company default risk points to structural differences in how risk is priced and transmitted. Private firms are less exposed to immediate changes in market valuations and volatility, and their default risk tends to adjust more gradually as changes in demand, costs and cash-flow generation work through financial statements. As a result, private-company EDF-X signals appear more closely anchored to contemporaneous fundamentals and less sensitive to short-term fluctuations in confidence or expectations.
The key observation is not that private French corporates are immune to macroeconomic headwinds, but that their credit risk has evolved in a more measured and regionally consistent manner. Understanding why private-company default risk has remained comparatively stable, even as risk pricing for public issuers diverged, provides an important counterpoint to the public-company analysis and helps isolate the channels through which uncertainty and sentiment affect different segments of the corporate sector.
Sectoral analysis and trends
France’s corporate credit risk has fallen over the past twelve months, with a greater number of sectors reporting negative in YoY PD growth. As illustrated in Figure 8, average credit risk increased in three industry sectors, whereas sixteen sectors demonstrated improvements. Delayed consumer spending and cautious demand have contributed to the restrained recovery that is observed in the consumer goods and services sectors. While market sentiment stayed low for most of the year, there has been notable divergence between business and consumer confidence. Business confidence has rallied, but consumer confidence has continued to sit well below the benchmark level18.
FIGURE 8 Credit risk improvements for most industry sectors have offset some modest deteriorations
Source: Moody’s EDF-X platform as of Jan 2026
When default risk rises without balance-sheet stress
The recent evolution of credit risk for listed French companies is noteworthy, with public company default risk rising to its highest post-GFC level. The post-pandemic rebound has faded, inflation has eased, and policy rates have stabilised relative to the 2023–24 peak.19 Against that backdrop, a gradual normalisation of credit risk would not be surprising, but the data tells a more uncomfortable story.
Between 2022 and 2024, default probabilities for French public corporates rose materially and, crucially, remained elevated, as shown in Figure 9. The increase was not fleeting, nor confined to a single sector. It was most pronounced among listed firms, but it was broad enough to warrant a closer look at what, exactly, the model was reacting to.
The obvious hypothesis is balance-sheet stress. Higher rates, weaker growth and tighter financial conditions should, in principle, translate into higher leverage, weaker coverage and strained liquidity. That hypothesis is attractive because it is familiar. It is also, in this case, largely unsupported by the data.
FIGURE 9 Default risk rose despite improving leverage and stable profitability
Source: Moody’s Orbis platform as of Jan 2026
While dispersion has increased in parts of the distribution, the median firm shows no evidence of balance-sheet deterioration consistent with the scale of the rise in default risk. Leverage declined rather than increased, with net debt to EBITDA falling steadily between 2020 and 2024 (Figure 10). Capital structures remained stable, as total liabilities relative to assets barely moved. Operating profitability held up, with EBITDA margins fluctuating within a narrow and historically normal range. Cash-flow generation, measured conservatively as operating cash flow relative to total liabilities, remained resilient and improved into 2024. Even interest coverage, while compressed as higher rates fed through, remained above pre-pandemic medians.
FIGURE 10 Median balance-sheet and cash-flow metrics remain broadly stable
Source: Moody’s Orbis platform as of Jan 2026
These are not the hallmarks of a balance-sheet-driven credit downturn. They are, if anything, indicative of a corporate sector that entered the tightening cycle in relatively good shape and responded by de-risking where possible. To argue that the rise in default risk is primarily a reflection of deteriorating solvency would require evidence of stress in these metrics. That evidence does not appear in the median data.
There is one partial exception. Liquidity, proxied by cash relative to current liabilities, tightened meaningfully between 2021 and 2023. That adjustment is economically intuitive. Higher input costs, weaker demand visibility and increased uncertainty all tend to manifest first in working capital. But the timing matters. Liquidity ratios stabilised in 2024, while default probabilities remained elevated. Liquidity adjusted, but it did not unravel.
This mismatch forces a reconsideration of what the model is capturing. As a market-implied, forward-looking measure of default risk, EDF-X Public is sensitive not only to realised financial stress, but to changes in expectations, risk premia and the perceived distribution of future outcomes. In the French case, the period of rising default risk coincides less with a deterioration in corporate fundamentals and more with a deterioration in the environment in which those fundamentals are assessed.
That interpretation is reinforced by the behaviour of the market-implied inputs underpinning the model. While accounting leverage declined steadily over the period, asset volatility rose and market-implied leverage increased materially. Median net debt to EBITDA fell from 1.16x in 2020 to 0.91x in 2024, indicating balance-sheet deleveraging among French corporates. Over the same period, asset volatility increased from around 20% to above 22%, and market-implied leverage rose from below 40% to the mid-40s (Figure 11). This divergence reflects weaker equity valuations and heightened uncertainty rather than an expansion of debt, mechanically elevating default probabilities even as reported financial fundamentals improved. In this sense, rising default risk in France has been driven less by balance-sheet strain and more by a market-level repricing of risk, consistent with a confidence- and policy-sensitive credit environment.
FIGURE 11 Deleveraging on the balance sheet versus market-implied repricing
Source: Moody’s Orbis and EDF-X platform as of Jan 2026
Over this period in which accounting leverage declined and operating metrics stabilised, asset volatility increased and market-implied leverage rose, reflecting weaker equity valuations rather than higher debt. These dynamics mechanically elevate default probabilities, not because firms have taken on more debt, but because the market assigns a higher probability to adverse future states.
France’s macro backdrop over this period is characterised by political fragmentation, repeated budgetary negotiations and unresolved questions around fiscal consolidation and pension reform. These dynamics do not immediately weaken corporate balance sheets. They do, however, shorten planning horizons, raise uncertainty around taxation and regulation, and increase the perceived difficulty of underwriting medium-term cash flows. For market-facing firms in particular, such uncertainty is rapidly capitalised into equity values and volatility, which feed directly into the default probabilities.
The result is a widening wedge between market-implied default risk and contemporaneous accounting data. Default risk appears to be repriced ahead of stress, not because firms are already weaker, but because the range of plausible future states has widened. In effect, EDF-X embeds a confidence premium: a higher probability assigned to adverse outcomes that have not yet materialised in the financial statements.
This helps explain two otherwise puzzling features of the data. First, why default risk rose most sharply among listed firms, despite broadly similar balance-sheet trends across public and private companies. Listed firms are more exposed to changes in market sentiment and policy risk, and their valuations respond immediately. Second, why default risk did not normalise even as inflation eased and rate hikes paused. What held risk elevated was not the cost of capital alone, but uncertainty around the policy and growth regime itself.
From a credit perspective, this is an important distinction. It suggests that EDF-X Public signals in France over this period should not be read as confirmation of imminent balance-sheet deterioration. Rather, they should be interpreted as an early warning of a regime in which confidence, policy credibility and refinancing expectations play a larger role in shaping credit risk than leverage or margins. Traditional financial ratios remain essential for assessing resilience but are not sufficient to explain the dynamics of default risk on their own.
In that sense, France’s current corporate credit profile is not defined by fragility, but by sensitivity. Firms are not breaking under the weight of debt. They are operating in an environment where uncertainty has become harder to diversify away, and where risk is repriced before it is realised. EDF-X captures that shift precisely because it looks beyond the balance sheet and into the space where expectations, confidence and policy risk intersect.
Summary
France’s corporate credit cycle has entered a phase in which default risk has risen without a commensurate deterioration in balance-sheet fundamentals, creating a more complex signal environment for credit investors. Macroeconomic pressure has eased relative to the 2022–23 peak, with inflation moderating and growth stabilising, yet this stabilisation has not translated into broad-based credit repair. Financing conditions remain materially tighter than in the pre-2022 period, investment has lagged, and policy uncertainty continues to weigh on confidence and longer-term planning.
EDF-X signals reveal a pronounced divergence between listed and private firms. Default probabilities for public companies rose earlier, climbed higher, and have remained persistently elevated despite relatively stable median leverage, coverage and cash-flow metrics. Private corporates, by contrast, have exhibited a more contained and regionally consistent risk profile, with default probabilities stabilising earlier and remaining more closely anchored to realised operating performance.
This distinction is particularly relevant for private credit. Listed firms act as the primary transmission channel for changes in expectations, valuation and volatility, meaning market-driven default measures for public issuers embed shifts in confidence, refinancing assumptions and policy risk well ahead of observable balance-sheet stress. Private firms, with more opaque pricing and less immediate exposure to market repricing, tend to adjust more gradually as higher funding costs, weaker demand visibility and margin pressure work through cash flows and covenant headroom.
Importantly, the rise in default risk observed across French corporates does not reflect widespread balance-sheet fragility. Median financial statement metrics point to gradual deleveraging, stable profitability and resilient operating cash flows. Instead, the evidence points to a repricing of risk driven by leverage and volatility, rather than an erosion of solvency. For private credit investors, this reinforces the need to distinguish between early market signals of sensitivity and the slower-moving fundamentals that ultimately determine loss outcomes.
The implication for private credit portfolios is twofold. First, higher default probabilities should not be read only as a signal of imminent distress, but as an indication that refinancing risk, covenant design and sponsor behaviour will matter more than in the low-rate period. Second, dispersion of credit performance is likely to widen. In a regime where confidence and policy transmission play a larger role, outcomes will increasingly depend on entry leverage, cash-flow durability and structural protections, rather than headline macro-credit conditions alone. In this environment, credit risk is becoming more path-dependent, and the ability to separate market repricing from true balance-sheet deterioration is central to capital preservation.
References
1Inflation has decreased from 5.2% in 2022 to 2% in 2024. World Bank (2025) Inflation, consumer prices (annual %), France, World Bank Open Data. Available at: https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?locations=FR
2ECB (2025) Economic Bulletin, Issue 6/2025. European Central Bank.
Available at: https://www.ecb.europa.eu/pub/economic-bulletin/html/index.en.html
3Eurostat (2025) Harmonised Index of Consumer Prices (HICP) – France.
Available at: https://ec.europa.eu/eurostat
4IMF (2025) World Economic Outlook. International Monetary Fund. Available at: https://www.imf.org/en/Publications/WEO
5INSEE (2025) Business Climate Indicator. Institut national de la statistique et des études économiques. Available at: https://www.insee.fr/en/statistiques
6OECD (2025) OECD Economic Outlook, France. Organisation for Economic Co-operation and Development. Available at: https://www.oecd.org/economic-outlook/
7OECD (2024) Reassessing the Role of Demand Composition in Post-Pandemic Recoveries. OECD Economics Department Working Papers. Available at: https://www.oecd.org/economy/working-papers/
8IMF (2018) Private Investment: What’s the Holdup?, World Economic Outlook, Chapter 4. Available at: https://www.imf.org/en/Publications/WEO/Issues/2018/03/20/world-economic-outlook-april-2018
9INSEE (2025) In the first quarter of 2025, GDP rebounded moderately (+0.1%) and household purchasing power increased slightly (+0.1% per consumption unit). Available at: https://www.insee.fr/en/statistiques/8579053#graphique-cnt-pe-g1-en
10INSEE (2025) Unemployment rate (BIT), France. Institut national de la statistique et des études économiques. Available at: https://www.insee.fr/en/statistiques
11European Central Bank (2025) Economic Bulletin, Issue 5/2025. Available at: https://www.ecb.europa.eu/pub/economic-bulletin/html/index.en.html
12Eurostat (2025) Compensation per employee and labour cost indices, France. Available at: https://ec.europa.eu/eurostat
13OECD (2024) Household income, inflation and wage dynamics. OECD Economic Outlook. Organisation for Economic Co-operation and Development. Available at: https://www.oecd.org/economic-outlook/
14European Central Bank (2025) Labour productivity per hour worked, France (MNA.Q.Y.FR.W0.S1.S1._Z.LPR_HW). ECB Data Portal. Available at: https://data.ecb.europa.eu
15INSEE (2025) Wages and salaries – quarterly developments, France. Institut national de la statistique et des études économiques. Available at: https://www.insee.fr/en/statistiques/8354093
16Moody’s Ratings (2025) Credit Opinion: Government of France (Aa3). Moody’s Investors Service. Available to subscribers
17European Central Bank (2025) MFI interest rate statistics – loans to non-financial corporations. European Central Bank. Available at: https://www.ecb.europa.eu/stats/financial_markets_and_interest_rates/bank_interest_rates/html/index.en.html
18Business confidence indicator at 100.18 and consumer at 98.06, France, OECD data Available at: https://www.oecd.org/fr/publications/perspectives-economiques-de-l-ocde-volume-2025-numero-2_62298503-fr/full-report/france_9f629187.html
19Inflation has decreased from 5.2% in 2022 to 2% in 2024. World Bank (2025) Inflation, consumer prices (annual %), France, World Bank Open Data. Available at: https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?locations=FR
Contacts
Hanna Sundqvist
Head of Private Credit, Europe
Asset Management
+44 203 314 2217
Hanna.Sundqvist@moodys.com
Njeri Njenga
Financial Engineer
Asset Management Research
+44 203 314 2365
Njeri.Njenga@moodys.com
David Hamilton
Head of Asset Management Research
+1 212-553-5931
David.Hamilton@moodys.com
About
This article is a product of Moody’s Asset Management Research team, part of Moody’s Analytics (“Moody’s”), a division of Moody’s Corp. separate from Moody’s Ratings. The analysis and viewpoints expressed herein are solely those of Moody’s Asset Management Research team.
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