LONDON, January 24 (Fitch) Fitch Ratings has affirmed Germany's
foreign and local currency Issuer Default Ratings (IDR) at 'AAA'
Outlooks. The issue ratings on Germanyâ€™s unsecured foreign and
bonds have also been affirmed at â€˜AAAâ€™. Fitch has also
affirmed the Short-term
foreign currency IDR at 'F1+' and Country Ceiling at 'AAA'.
KEY RATING DRIVERS
The affirmation of Germany's sovereign ratings reflects the
The general government debt to GDP ratio (GGGD) has already
started to fall in
Germany, unlike its â€˜AAAâ€™ rated eurozone peers and France
(AA+/Stable) and the US (AAA/RWN). Fitch estimates GGGD to have
eased to around
79.4% in 2013 from 81% in 2012. Germany continues to have the
components of a
declining public debt path. The economy is growing, the budget
relatively favourable and nominal interest rates are low.
GGGD remains elevated compared with the 'AAA' median of 46.7%,
it is within the
range considered by Fitch to be consistent with a â€˜AAAâ€™
The government continues to be within medium-term fiscal targets
with a margin.
The general government structural balance remained in positive
territory in 2013
after moving into a surplus for the first time since
re-unification in 2012.
This is well within the 0.5% of GDP deficit medium-term
objective set under the
Stability and Growth Pact. The federal structural balance is
expected to again
be better than the 0.35% of deficit limit from 2016 set under
constitution. Public finances were also slightly better in 2013
than expected in
Fitchâ€™s forecast in August 2013. Headline general government
budget is estimated
to have been in balance rather than the expected small deficit.
The new coalition government is committed to reducing public
debt. Under the
CDU/CSU and SPD coalition agreement, the partners will adhere to
the target of a
structurally balanced budget in 2014 and a headline balanced
budget in 2015. The
government has also maintained its commitment to reducing GGGD
to 70% in this
parliamentâ€™s lifetime (by 2017). This is despite the coalition
additional net spending of EUR23bn (0.8%) spread over the next
financing of which is yet to be clearly specified.
The risk from contingent liabilities from the eurozone crisis
continues to ease
on improved regional governance, economic recovery and ECB
contribution to the EFSF has already added about 2pp to the
government debt to
GDP ratio and the EFSFâ€™s total commitments add 1.3% of GDP to
liabilities. Commitments to the ESM are capped at German
contributions paid in
capital, which is around 0.8% of GDP.
The risk to public finances from the prospects of further
sovereign support for
German domestic banks remains low. This is despite the upcoming
quality review and stress test by the ECB and EBA and structural
including weak earnings and some banksâ€™ concentration of
exposure to sectors
such as shipping loans and the eurozone periphery. German banks
capitalisation and for most of them, funding conditions remain
have also been repaying capital injected by SoFFin (Financial
Stabilisation Fund), which has no outstanding guarantees.
The fiscal adjustment effort to achieve the long-term
sustainability of public
finance in light of the rising cost of an ageing population
significantly lower than the EU average due to the current
flows. This is even after considering the coalition agreement,
increased pensions and early retirement for some. The shrinking
population and work force is nevertheless a key factor in
low long-term potential economic growth. Moreover, these new
a country-wide minimum wage and limiting the use of temporary
could weigh on long-term economic prospects, although Fitch
continues to believe
potential growth between 1.25% and 1.5% is plausible.
Germany has a high-value added economy with a competitive
and effective political, civil and social institutions.
It is the primary benchmark issuer for the eurozone, which gives
fiscal financing flexibility. As a consequence of safe-haven
yields are low across the curve.
Germany is a significant net external creditor with one of the
international investment positions in the world and a large
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 of the ratings include:
- Re-intensification of the eurozone crisis. As the largest
contributor to any
eurozone rescue package, and financial sector exposure to
economies, Germany remains exposed to the risks of spill-over
from the sovereign
debt crisis. However, Fitch believes the risk of a
re-intensification of the
eurozone crisis is in decline.
- GGGD approaching 90% would start to put pressure on the
rating, although Fitch
does not view such an outcome as likely. Economic stagnation, a
weakening in the
underlying budgetary position, and/or further state support to
sector would lead to further increases in public debt over the
The ratings and Outlooks are sensitive to a number of
Fitch assumes Germany's economic growth to rise around 1.6% in
2014 and 2015
from 0.4% in 2013. This is also dependent on the soft recovery
in the eurozone
(Germanyâ€™s biggest export market) 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 does not expect
burden to German public finances from contributions to the
management mechanisms other than already budgeted.
Fitch expects the government to implement its commitment to
(structural and headline) and reducing public debt closely. We
expect GGGD to
ease to around 70% in 2017.
Fitch also does not expect any further debt raising costs from
sector. Rather as the workout of nationalised institutions
progresses, the sale
of existing assets could reduce public debt more than projected
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The issuer did not participate in the rating process other than
medium of its public disclosure.
Applicable criteria, 'Sovereign Rating Criteriaâ€™ dated 13
August 2012 and
'Country Ceilings' dated 9 August 2013, are available at
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