Fitch affirms France 'AAA', says no room for slippage

A plaque is pictured at the entrance of the Fitch offices in downtown Milan January 24, 2012.

PARIS (Reuters) - Fitch Ratings stuck by its triple-A rating on France in a much-awaited review on Friday but predicted a peak in debt in 2014 at a level that it said was the maximum for a country with a top-notch credit grade.

Fitch is the only agency to retain an AAA rating on the euro zone's second-largest economy. It kept to its negative outlook, saying that indicated a slightly greater than 50 percent chance of a downgrade in future.

The ratings agency forecast growth of only 0.3 percent in 2013, well below the 0.8 percent the 2013 budget is built on, and believes the government will not be able to narrow the public deficit as by much as it hopes.

Fitch managing director David Riley told Reuters the deficit was likely to come in at 3.6 percent of national output, more than the 3 percent targeted by President Francois Hollande's government.

"The combination of weaker growth and slightly larger deficits compared to the government forecasts mean that we expect government debt to peak at 94 percent (of GDP) in 2014 and gradually decline thereafter," Riley said.

The French government forecasts debt peaking in 2013 at 91.3 percent of GDP and dipping in 2014 to 90.5 percent.

"The key fiscal trigger for a rating action is not the precise 'point' forecast but rather confidence that government debt to GDP ratio will indeed be on a firm downward path from 2014," he added.

Many economists expect growth to be far weaker than the government says and that it will be necessary to cut spending further or raise more tax income to meet deficit targets.

Hollande hit back at a news conference after an EU summit in Brussels, saying he saw an economic recovery emerging in 2013.

"France does not determine its economic policy according to credit ratings agencies, it does it according to what is right for France," Hollande said.

He noted that the interest rates investors demand to hold French debt, a gauge of market confidence, were near historic lows in recent months.

Fitch raised its forecast for the country's debt in 2014 to 94 percent of GDP from an earlier 92 percent - higher than any other top-rated sovereign except the United States and Britain.

"This is at the limit of the level of indebtedness consistent with France retaining its 'AAA' status assuming the government debt is firmly placed on a sustainable downward path from 2014," Fitch said in a statement.

Last month, Moody's cut France by one notch from AAA to Aa1 - causing only muted investor reaction - following a similar downgrade by Standard & Poor's in January.

Despite those cuts, Finance Minister Pierre Moscovici said that ratings agencies ultimately had faith in France.

"They all say the same thing. France is not the country that some people like to make fun of. France's is not a country of baguette eaters with a beret on the head," he told radio station Europe 1.

(Reporting by Alexandria Sage and Leigh thomas in Paris, Mark John in Brussels; editing by Brian Love and Ron Askew)