Socialist President Francois Hollande efforts to convince the world that he can rejuvenate France's stalled economy suffered a big blow after rating agency Moody's stripped the country of its coveted AAA rating.

Moody's credit rating agency downgraded France's rating by one notch from AAA to AA1, citing a doubtful fiscal outlook and worsening economic condition.

The credit rating agency warned that France's economic outlook remains "negative," saying it was keeping a negative outlook on the Europe's No. 2 economy because of structural challenges and a continued loss of competitiveness in the economy.

In its most recent report, Moody's said, "The rigidities in labour and services markets, and low levels of innovation, which continue to drive France's gradual but sustained loss of competitiveness and the gradual erosion of its export-oriented industrial base."

Reacting to the cut in the country's credit rating, Finance Minister Pierre Moscovici said the downgrade would motivate the six-month-old Socialist government to pursue economic reforms.

Moody's recent move followed a similar move by Standard & Poor's, which also downgraded France's credit rating by one notch to AA+ in January, with a negative outlook. Fitch Ratings still has AAA rating for France, with a negative outlook.