Fitch raises his finger in warning
When it comes to creditworthiness, Germany is still at the top
March 17, 2024, 10:54 a.m
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Despite all the criticism of Germany as a business location, Europe’s largest economy remains the benchmark when it comes to solvency. The rating agency Fitch praises the broad positioning and solid financial policy. But the experts also point out a number of risks.
The rating agency Fitch has confirmed the top credit rating “AAA” for Germany. The outlook is “stable”. The rating reflects Germany’s diversified economy with high added value and its strong institutions. The rating is also supported by a prudent financial policy and very low government financing costs. The persistently high current account surpluses also testify to the competitiveness of the German export sector and support the net foreign creditor status and the positive net international investment position.
Despite these strengths, Germany faces several structural challenges, including a rapidly aging population that is beginning to put pressure on public finances and the labor market, analysts said. Germany’s economic performance after the pandemic also remains weak. The economy shrank by 0.3 percent in real terms in the fourth quarter of 2023, meaning that production was only slightly above the level in the fourth quarter of 2019.
The below-average growth performance since 2022 is due to a combination of external shocks and structural factors. After a decline of 0.3 percent in 2023, Fitch analysts are only forecasting growth of 0.1 percent for 2024. However, the economic outlook is likely to brighten and growth will accelerate to 1.4 percent by 2025. Analysts estimate that the energy shock reduced Germany’s production potential by one percent of gross domestic product (GDP). However, the production gap is large, which indicates a need to catch up.
However, the risks to economic growth are on the downside, it said. German production potential may have suffered more as a result of the energy shock or the recovery may be delayed. The competitiveness of German exports could come under greater pressure if wages continue to rise faster than productivity growth or if energy prices stabilize at higher levels. Furthermore, further fiscal consolidation may be required to comply with the debt brake after 2024, which could have an immediate impact on growth.