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S&P cuts France's sovereign credit rating

Holly Ellyatt and Phillip Tutt
Lionel Bonaventure | AFP | Getty Images

Ratings agency Standard and Poor's cut France's sovereign credit rating to AA from AA+ on Friday, citing lack of progress in government reforms of the country's economy.

The agency revised the country's sovereign credit outlook up to stable from negative, however.

In a statement, S&P said that it had lowered France's rating because it believed the government's reforms to taxation, as well as to product, services, and labor markets, "will not substantially raise France's medium-term growth prospects, and that ongoing high unemployment is weakening support for further significant fiscal and structural policy measures."

"Furthermore, we believe lower economic growth is constraining the government's ability to consolidate public finances," the agency said.

(Watch:Not concerned about France's downgrade: Vallourec CEO)

French President Francois Hollande told reporters in Paris that his government would carry out all savings measures possible without endangering the country's welfare policy, Reuters reported.

He added that only the economic policies pursued by his government could underpin France's credibility.

What do Europe's business leaders think of France's downgrade?

Earlier on Friday, the French Finance Minister Pierre Moscovici said he "regretted" the downgrade, calling S&P's criticisms inaccurate. He added that France's rating was still among the highest in the world and that France's debt "remains among the safest and most liquid ones within the euro zone."

"This confidence strengthens the Government's conviction that its strategy is the right one."

An euro area economist at AXA Investment Managers said that the decision was the right one, however, given France's economic situation.

(Read more: Hard work: Chinese navigate France's labor rules)

"This downgrade makes perfect sense, " Maxime Alimi told CNBC Europe's "Squawk Box" on Friday. "Looking at the fundamentals of France, this downgrade is justified."

"France is very vulnerable now to different shocks -- if you look at the debt-to-GDP [ratio] which is now above 90 percent, if you look at pretty low credibility in fiscal matters and what's been done on the implementation of structural reforms."

"S&P has proven to be a very consistent ratings agency and I think this is a fair assessment of the situation," he added.

The euro fell sharply after the news to $1.339 after starting Fridays' session at $1.342. The CAC 40 was 0.68 percent lower at Friday's open with French lenders Credit Agricole, BNP Paribas and Societe Generale all posting losses.

(Read more: France veers to the right as National Front gains support)

France is the 28-country European Union's second-largest economy, after Germany, but it is struggling: unemployment is stuck at around 11 percent and its government deficit is at around 4 percent of gross domestic product – higher than the EU's ceiling of 3 percent.

It faces pressure from the European Commission to bring its deficit under 3 percent of GDP (gross domestic product), the deficit ceiling demanded by the commission but French Finance Minister Pierre Moscovici has already said that France will miss its previous deficit targets for 2013 and 2014, raising them to 4.1 percent and 3.6 percent respectively.

Nicholas Spiro, head of Spiro Sovereign Strategy, told CNBC that the Hollande administration had not done enough to improve the economy.

"While France was dragging its feet long before Mr Hollande became president last year, the policies of the current government have proved woefully inadequate to the task and, if anything, have made matters worse through excessive taxation."

"The fact that euro zone sovereigns - and members of the core of the bloc at that - continue to be downgraded by agencies is a reminder, if one were needed, that the prospects for growth and meaningful reform in Europe's single currency area remain bleak."