Fitch confirms top marks
Germany retains “AAA” rating
04/01/2023, 09:11 am
Due to the war against the Ukraine, Germany has to accept a considerable setback in economic power. But that doesn’t change the confidence of the rating agency Fitch in the German economy. It stays with the best grade.
The rating agency Fitch has confirmed the top rating “AAA” and the outlook “stable” for Germany. The rating reflects Germany’s broad-based, high value-added economy, strong institutions and solid public finances, Fitch said. Nonetheless, the country has been hit hardest by the energy shock and supply chain bottlenecks of the major eurozone economies. But the shock has weakened.
Fitch is now assuming that the German economy will grow by 0.1 percent this year. In October, a decline of 0.5 percent was still assumed. Since interest rates are likely to remain high for longer, growth in 2024 will probably only be 1.4 percent instead of the 2.3 percent last predicted.
Inflationary pressure will also remain high and the German labor market very tight, Fitch explained. So far, the pressure on wages has been limited. However, the current wage demands are very high, which poses a risk for the inflation path. Moderate budget deficits and sluggish economic growth should lead to a stabilization of the general government debt at around 67 percent of gross domestic product in the medium term, it said.
That is eight percentage points above the level before the pandemic. Compared to the average of around 106 percent for the euro zone, however, it is a favorable value. Fitch described the German banking sector as resilient, and the risks in the real estate market had been contained.
For other countries, the rating agency is much less optimistic. Argentina was downgraded by two notches from CCC- to C last week. This means that, according to the agency, there is an imminent risk of non-payment. With Tier C, Argentina is just one tier away from D, partial or total default.