FRANKFURT (MNI) — Fitch announced Monday that it is affirming
Germany’s long-term foreign and local currency Issuer Default Ratings
(IDR) at AAA. The outlooks on the country’s IDRs are stable, the rating
agency said in a press release.
Fitch commented that it expects German GDP this year to be +3.6%,
followed by around +2.0% in both 2011 and 2012. Looking at the country’s
fiscal position, Fitch said it expects Germany’s federal deficit to be
4.3% of its GDP this year (after 3.3% in 2009) and public debt to be at
76% of GDP this year.
The following is the verbatim text from Fitch’s press release:
Fitch Affirms Germany at ‘AAA'; Outlook Stable
Fitch Ratings-London/Frankfurt-20 September 2010: Fitch Ratings has
affirmed Germany’s Long-term foreign and local currency Issuer Default
Ratings (IDRs) at ‘AAA’. The Outlooks on the IDRs are Stable. Fitch has
simultaneously affirmed Germany’s Country Ceiling at ‘AAA’ and
Short-term foreign currency IDR at ‘F1+’.
“Germany’s economic outlook has been enhanced, not only by its
recent robust macroeconomic performance – mostly due to a strong
recovery of exports and a pickup in investments – but also by its
resilient labour market, with unemployment reaching a low not seen since
1991,” says Maria Malas-Mroueh, Associate Director in Fitch’s Sovereign
team.
“On a more fundamental level, Germany continues to command one of
the world’s strongest net international investment positions (at 38% of
GDP in 2009), affording it safe-haven investment status, as reflected in
its benchmark spreads that have tightened significantly during the euro
area crisis,” adds Ms. Malas-Mroueh.
Following a sharp GDP contraction of 4.7% in 2009, the recovery has
taken a clear ‘V’ shape, with Q210 growth reaching 2.2% qoq, prompting
Fitch to revise up its forecast for 2010 GDP to 3.6% (from 1.6%). Fitch
expects more gradual growth in the medium term (at around 2% for 2011
and 2012), as the pace of the recovery, particularly of global trade,
moderates.
As the primary benchmark issuer for the euro area, Germany enjoys
significant financing flexibility, allowing it to extend generous fiscal
stimulus measures to support its economy and financial sector during the
downturn. Although this flexibility has provided a cushion from the
negative impact of the recession, the government outlays contributed to
public finance deterioration, with Germany’s balanced budget position in
2008 leading to a 3.3% of GDP deficit by 2009. Fitch expects the 2010
deficit and public debt to further escalate to 4.3% of GDP and 76% of
GDP, respectively.
Germany has expressed its commitment to reversing its fiscal
imbalances through the government’s four-year consolidation programme,
aimed at reducing the budget deficit to below 3% by 2013. This would
imply a tightening of less than 1.5% of GDP from 2010-13, compared with
around 5% of GDP for France and the UK. Moreover, the constitutional
balanced-budget rule, adopted in August 2009, provides for an
institutional guarantee of budgetary constraint and enhances fiscal
credibility. Fitch considers the risks to the government consolidation
programme to be skewed to the upside, largely on account of Germany’s
fiscal discipline as well as the strong cyclical rebound in 2010. Even
so, debt is unlikely to stabilise before 2013.
Restructuring and consolidation of Germany’s banking sector remains
one of the country’s major challenges due to structural overcapacity of
the Landesbankens and significant exposures to lower-rated foreign
assets. Pressures on the financial system have eased with the improving
economic outlook and ample government support measures extended. Also,
EU-wide stress tests – in which 14 German banks participated
(representing over 60% of banking system assets) – have somewhat
alleviated concerns surrounding the system’s vulnerability. Nonetheless,
Fitch notes that the financial sector will remain a source of potential
contingent liabilities for the government, as will Germany’s
participation in European sovereign financial stabilisation mechanisms,
both of which could put upward pressure on Germany’s public debt ratios.
Germany’s ‘AAA’ rating is further underpinned by its strengths as a
large and diversified high-value-added economy with high GDP per capita,
prudent macroeconomic management, and effective political, civil, and
social institutions.
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