By Rene Wagner BERLIN (Reuters) - Germany needs to overcome its structural weaknesses if it wants to keep its AAA credit rating in the long term, Eiko Sievert, executive director at European ratings
Germany Must Tackle Structural Issues to Maintain AAA Credit Rating
By Rene Wagner
BERLIN (Reuters) - Germany needs to overcome its structural weaknesses if it wants to keep its AAA credit rating in the long term, Eiko Sievert, executive director at European ratings agency, Scope Ratings, told Reuters in an interview.
"Weaker GDP growth alone does not pose an immediate threat to Germany's AAA rating, even if economic stagnation continues into 2025," Sievert said. "However, the pressure on the rating will increase if Germany is unable to tackle the causes of its weak growth."
Germany's economy contracted for a second year in 2024, as its exports suffered amid weak global demand and competition, especially from China.
Disagreements over how to promote recovery in Europe's largest economy were the main factor behind the demise of Chancellor Olaf Scholz's fractious three-party coalition last year, and the economy is the top concern among German voters.
According to Sievert, the structural weaknesses include high energy prices, "which take a toll on Germany's production and export strength," a lack of investment in infrastructure, education and digitalisation, and inadequate labour market reforms, which weaken international competitiveness.
Having a low national debt level of 63% of GDP speaks in favour of Germany's high creditworthiness when compared with other major European economies but this alone is not a guarantee of keeping the AAA rating, Sievert said, as the rating takes into consideration other factors.
The other AAA countries rated by Scope have an even lower average debt level of 36%, Sievert told Reuters. "Within the AAA group, Germany even has the highest level of government debt."
Germany has a debt brake, which limits public borrowing to 0.35% of gross domestic product, and forms an important part of the German fiscal policy framework, Sievert said. However, a reform of the debt brake, which would enable more growth-promoting public investment, would certainly be positive, he added.
"If Germany wants to halt the gradual decline in its competitiveness, then the next German government should focus on significantly increasing investment," Sievert said.
Germany will hold a snap national election on Feb. 23.
Moody's, Standard & Poor's and Fitch Ratings also have an AAA rating on Germany.
(Reporting by Rene Wagner, writing by Maria Martinez; Editing by Sharon Singleton)
