Germany’s Rating On Negative Outlook, Despite Maintaining Triple-A Status
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International credit ratings agency Moody’s on Thursday reaffirmed Germany’s top “Aaa” sovereign debt rating, but issued a negative outlook for its economy, just a day after rumours over a possible German downgrade prompted a sell-off in European stock markets.
Although the agency emphasised that its credit report on Germany was “an annual update to the markets and does not constitute a rating action,” it noted that German GDP growth had slowed in 2012, while forecasting it to slow further to 0.4 percent in 2013.
International credit ratings agency Moody’s on Thursday reaffirmed Germany’s top “Aaa” sovereign debt rating, but issued a negative outlook for its economy, just a day after rumours over a possible German downgrade prompted a sell-off in European stock markets.
Although the agency emphasised that its credit report on Germany was “an annual update to the markets and does not constitute a rating action,” it noted that German GDP growth had slowed in 2012, while forecasting it to slow further to 0.4 percent in 2013.
The negative outlook on Germany’s sovereign rating “primarily reflects the uncertainty associated with the impact of the ongoing euro area debt crisis, specifically the risks to Germany and the wider euro area stemming from a potential exit of a member country,” said a Moody’s statement, as cited by AFP.
[quote]“Furthermore, the outlook reflects rising contingent liabilities that the German government has assumed in the context of the global financial crisis and may further assume in the future” over the European sovereign debt crisis, Moody’s added.[/quote]Last year, Moody’s also warned of a possible downgrade for Germany’s ratings on mounting fears over their involvement in Greece and Spain.
Related: Germany Risks Losing Coveted AAA Credit Rating
Related: Bundesbank Doubles Their Reserves, Warns Eurozone Crisis “Is Not Over”
But while Moody’s has predicted “lower net export contribution (in Germany) in light of the weak euro area outlook and rising imports, and only a moderate recovery in investment growth,” they highlighted the country’s well-balanced economy and record of fiscal discipline as significant positives.
Germany’s rating “is underpinned by the country’s advanced, diversified and highly competitive economy and its track record of stability-oriented macroeconomic policies. Moreover, Germany enjoys high levels of investor confidence, which is reflected in very low debt funding costs,” they said.
Germany last month also presented a budget that would allow the federal government to reach a structurally balanced budget in 2014 – a year earlier than expected.
Consequently from 2015 onwards, Europe’s largest economy will no longer require to take on any new debt, while tax revenues are also on the rise.
[quote]“With all modesty, this is a result of historic proportions,” said German economy minister Phillip Roesler when presenting the budget last month. “The lesson from the sovereign debt crisis is that solid finances are essential. Thanks to this approach Germany is in the vanguard in Europe. Our success with a policy of growth-oriented consolidation is the envy of the world.”[/quote]Related: Germany To Avoid Recession & Return To Growth: Bundesbank
Related: Germany To Take On No New Debt From 2015
Nonetheless, markets were spooked of a rumoured downgrade on Wednesday, with European stocks witnessing the biggest four-day selloff since July. According to Presstv, the Stoxx 600 index was down 1.5 percent, led by a drop in commodity producers and automakers.
