Germany’s AAA Credit Rating at Risk

By Rene Wagner

BERLIN (Reuters) – Germany must address its structural weaknesses to maintain its AAA credit rating long-term, said Eiko Sievert, executive director at Scope Ratings, 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 noted.
> However, pressure on the rating will increase if the country cannot resolve the issues causing its weak growth.

Germany’s economy contracted for the second year in 2024, affected by declining exports due to weak global demand and competition, especially from China.

Disputes over recovery strategies in Europe’s largest economy contributed to the collapse of Chancellor Olaf Scholz’s three-party coalition last year. Economic issues are now the chief concern among German voters.

Sievert identified several structural weaknesses: high energy prices diminishing production and export capabilities, insufficient investment in infrastructure, education, digitalization, and labor market reforms. These factors collectively weaken Germany’s international competitiveness.

While Germany’s low national debt level of 63% of GDP helps its creditworthiness compared to other major European economies, it is not a guarantee of retaining the AAA rating, Sievert explained. Other AAA-rated countries have an average debt level of only 36%. “Within the AAA group, Germany has the highest government debt level.”

Germany’s debt brake restricts public borrowing to 0.35% of GDP, which is a crucial aspect of its fiscal policy. Sievert suggested that reforming the debt brake to allow for more growth-promoting public investment would be beneficial.

> “If Germany wants to halt the gradual decline in its competitiveness, the next government should significantly increase investments,” he stated.

Germany is set to hold a snap national election on February 23.

Moody’s, Standard & Poor’s, and Fitch Ratings also maintain Germany’s AAA rating.