France avoided a credit downgrade from Moody’s, but the ratings agency painted a bleak picture of the eurozone’s second-largest economy that highlighted the risks from its intractable politics.

In an announcement late Friday , Moody’s kept France at Aa3—two grades below the U.S. and three below Germany—with a negative outlook, while ratings from peers Fitch and S&P Global are one notch lower.

France still boasts a wealthy economy and competent public institutions, according to Moody’s, but the political landscape threatens to paralyze the government and prevent it from making painful deficit-reduction steps.

The report flagged France’s divided parliament, which is often at odds with the government, as well as political and social instability.…