Fitch Ratings affirmed Germany's triple-A credit rating on Wednesday with stable outlook, citing the longstanding credit strengths and robust economic performance of the country over the past two years.
However, the biggest Eurozone economy remains exposed to the systemic component of the crisis, Fitch said. A significantly deeper recession of its large eurozone trading partners could also push Germany into recession with negative repercussions for the fiscal stance, it warned.
Additional sizeable contribution to eurozone bail-out funds, on top of the EFSF guarantees, could push German debt level above 90 percent of GDP, which is close to the upper limit that Fitch sees consistent with a 'AAA' rating.
"Materialisation of these risks would put downward pressure on the rating," the firm added.
Fitch's affirmation of Germany's top-notch rating comes just a week after Standard & Poor's retained a stable outlook for the country's triple-A grade. A week prior to that, Moody's Investor Service warned that Germany may lose its coveted ratings due to intensified uncertainty regarding the outcome of the debt crisis.
Germany's Long-term foreign and local currency Issuer Default Ratings (IDRs) were affirmed at 'AAA', today. Fitch also affirmed Germany's Country Ceiling at 'AAA' and Short- term foreign currency IDR at 'F1+'.
"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 said.
Despite the financial sector stabilization since 2009 and abundant liquidity, German banks may find it difficult to meet the Basel III requirements due to the modest profitability and still a high leverage, Fitch said. The quality of the remaining assets may well deteriorate further as the recession deepens in the periphery, the firm cautioned.
Further, the longer track record of German public finances serves as a warning sign, Fitch said. "Despite the fiscal rules of the eurozone, the debt/GDP ratio had increased to 83 percent by 2010 from 55 percent in 1995," the rating agency pointed out.
"During the 13 years of monetary union, the German debt ratio declined in only five years and has been above the 60 percent reference value since 2003."
The country's maximum contribution of EUR 211 billion to the euro area temporary rescue fund EFSF would translate into a 7 percentage point increase in the gross debt/GDP ratio, Fitch reckoned.
by RTT Staff Writer
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