LONDON, February 21 (Fitch) Fitch Ratings has affirmed Austria's
foreign and local currency Issuer Default Ratings (IDR) at 'AAA'
Outlooks. The issue ratings on Austria's unsecured foreign and
bonds have also been affirmed at 'AAA. Fitch has also affirmed
foreign currency IDR at 'F1+' and Country Ceiling at 'AAA'.
KEY RATING DRIVERS
The affirmation reflects the following factors:
The restructuring of Hypo Alpe Adria (HAA), a nationalised bank,
cause gross general government debt (GGGD) to rise more than
by Fitch. While there are still a number of options, the
government has yet to
disclose its preferred solution, raising concerns about policy
credibility in the near term. Fitch's public debt projections
are based on the
conservative assumption that the government absorbs HAA's total
assets with the
effect of raising GGGD by EUR18bn (5.6% of GDP) in 2014. This
will also reduce
the government's contingent liabilities by a similar amount and
impact on GGGD of further capital injections into the bank.
Further bank costs for the sovereign will be limited. The
banking sector in
general continues to face a broadly stable but challenging
domestically and externally, given its heavy exposure to Central
European and Commonwealth of Independent States countries. Some
started to repay participation capital and funding conditions
improving. Nevertheless, further capital transfers to other
medium-sized banks cannot be ruled out, although they would be
Despite the one-off stock-flow adjustments to GGGD related to
support, Fitch believes that Austria's relatively favourable
dynamics, including stronger growth and low fiscal deficits,
intact. Fitch expects the general government debt ratio (GGGD)
to peak close to
80% in 2014/2015 from a little over 74% in 2013. While the debt
elevated compared with the 'AAA' median of 46.7%, it is within
the range Fitch
considers consistent with a 'AAA' rating
The Austrian government has a relatively favourable budgetary
position with the
headline and primary fiscal balance better than the 'AAA'
median. The fiscal
outturn in 2013 is estimated to be around 1.6% of GDP, which is
also better than
previously expected by Fitch. Planned fiscal adjustment should
be sufficient to
put GGGD on a downward trajectory. Despite uncertainties about
fiscal consolidation measures, the impact on public finances
restructuring of HAA and the new coalition agreement, we
continue to expect the
government to adhere to its 'debt brake' of a structural deficit
no bigger than
0.45% of GDP from 2017 onwards from around 1.4% in 2013.
Prudent macroeconomic management, an absence of major imbalances
international competitiveness imply that the Austrian economy
should continue to
outperform the eurozone average. Austria has the lowest
unemployment rate in the
EU, although it is elevated by domestic experience, the private
moderately leveraged and the current account has been in surplus
The risk from contingent liabilities from the eurozone crisis is
improved regional governance, economic recovery and ECB policy.
We do not expect
any further contributions from Austria to the eurozone crisis
mechanisms than those already budgeted. Further contributions to
the EFSF and
ESM this year will push up the cumulative contributions to EU
measures to 2.9% of GDP from 2.7% in 2013.
Austria's ratings are also underpinned by a diversified open
economy with high
GDP per capita. The strong institutional framework fosters
confidence in its
ability to honour its public-debt commitments.
The Outlook is Stable. Consequently, Fitch's sensitivity
analysis does not
currently anticipate developments with a high likelihood of
leading to a rating
change. However, future developments that could individually or
result in a downgrade include:
- Further material costs from the financial sector that worsen
debt profile, for example in the context of the ECB's
Assessment, would trigger a negative rating action.
- Significant slippage from fiscal consolidation targets could
also trigger a
negative rating action. Insufficient discipline in local budgets
or a failure to
implement expenditure cuts, as yet unspecified in the
would put pressure on the rating.
The ratings and Outlooks are sensitive to a number of
Fitch assumes that Austria's economic growth rate will increase
to 1.6% by 2014
from 0.4% in 2013, in line with key trading partner Germany.
This is also
dependent on the soft recovery in the eurozone staying on track.
Fitch assumes the gradual progress in deepening fiscal and
at the eurozone level will continue; key macroeconomic
imbalances within the
currency union will be slowly unwound; and eurozone governments
fiscal policy over the medium term. It also assumes that the
fragmentation of the eurozone remains low.
Fitch assumes the Austrian government will broadly follow its
consolidation path. In total, the authorities expect that fiscal
reach EUR27.8bn by 2016. Spending cuts account for two-thirds of
with the bulk coming in 2015 and 2016.
After peaking at close to 80% of GDP in 2014/2015 over the next
10 years the
GGGD is projected to decline faster than the EU recommendation
that the excess
over 60% of GDP should be reduced by 1/20th per year on average.
impact of the restructuring of the financial sector remains
Implementation of ESA 2010 accounting changes would cause the
debt to GDP ratio
to increase by 2.5pp according to the Austrian Statistical
Office. Our debt
projections will take this into account when this change is
implemented by all
EU member states, which is expected from September 2014.
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Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530
Additional information is available at www.fitchratings.com.
Applicable criteria, 'Sovereign Rating Criteria' dated 13 August
'Country Ceilings' dated 9 August 2013, are available at
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