Fitch Maintains Germany at AAA, Outlook Stable

Fitch Ratings maintained Germany's AAA rating and reaffirmed the outlook on the rating as stable Wednesday. The rating agency said that "the affirmation reflects Germany's longstanding credit strengths and robust economic performance over the past two years. Against the background of fragile global recovery and the intensification of the eurozone crisis, Germany has recorded strong GDP growth and a declining trend in unemployment, partly as a result of previous structural reforms."

Fitch cited Germany's record-low unemployment, strong export-driven growth, and accomodative policy from the ECB as reasons for maintaining Germany's AAA. Also, they say that low yields due to capital inflows make Germany's long-term costs of fundings extremely manageable and easy to cover. "Furthermore, Germany has a strong net external creditor position and a large, albeit gradually declining, current account surplus."

Fitch does point out some troublesome spots for Germany. First, bank profitability remains low as credit growth in the Eurozone slows, which could make it difficult for German banks to raise new capital. Thus, if they fail to meet Basel III standards, Germany may be liable to inject liquidity into the banks so that they can meet the new standards. With low profitability and increasing risks to funding in the Eurozone, this could be a sticking point for Germany's AAA rating.

"Following the pledge of 100 billion euros to recapitalise the Spanish banking sector, Fitch considers the likelihood of disbursing all of the EFSF's 440 billion euro lending capacity to have risen significantly. Given Germany's maximum guarantee of 211 billion euros, this would translate into a 7 percentage point increase in the gross debt-to-GDP ratio."

One other negative point that Fitch makes again has to do with the banks, but this point is exposure to peripheral bonds. Even though banks' exposure has fallen by some 332 billion euros, this only represents a 30 percent drop in exposure to all Eurozone members, with 187 billion euros being withdrawn from Greece, Italy, Spain, and Portugal. "Despite this fast pace of deleveraging, the quality of the remaining assets may well deteriorate further as the recession deepens in the periphery." Thus, Germany may have to recapitalize its banks if asset values fall further, putting strains on its debt levels and potentially its credit rating as well.

The full text of the release can be found here.

Posted In: NewsBondsReiterationForexGlobalEcon #sEconomicsHotIntraday UpdateMarketsAnalyst RatingsFitchGermany
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!

Loading...