Fitch affirms Germany’s “AAA” rating

09.08.2012 11:53
Fitch affirms Germany’s “AAA” rating

YEREVAN, August 9. /ARKA/. Fitch ratings has confirmed Germany’s ‘AAA’ rating with a stable outlook, citing the country’s robust economic performance over the past two years in the midst of a euro zone crisis and slowing global growth, CNBC reports.

“Against the background of fragile global recovery and the intensification of the euro zone crisis, Germany has recorded strong GDP growth and a declining trend in unemployment, partly as a result of previous structural reforms,” Fitch said in a statement.

The firm pointed out that Germany is the only major advanced economy which had a lower unemployment rate in the first half of 2012 than it had in 2007.

Germany’s DAX index pared losses after the announcement, but was still trading down nearly 0.5 percent, as stocks across Europe took a breather from the recent rally.

The news is likely to provide a boost to Germany after Moody’s changed its outlook on Germany from stable to negative on July 24.

Moody's cited a possible Greek exit from the euro zone and said the burden of the costs would fall to Europe's top-rated sovereigns.

According to Fitch, a number of factors are working in Germany’s favor, including cumulative GDP growth of 5.8 percent since 2010, compared to 2.3 percent for the euro zone, accommodative policy from the European Central Bank, low bond yields and a current account surplus.

Fitch also said Germany’s financial sector had stabilized since 2009 and German banks had cut their total euro zone exposure by 332 billion euros, a 30 percent drop, of which 187 billion euros were withdrawn from Greece, Italy, Spain and Portugal, a 44 percent drop.

“Despite this fast pace of deleveraging, the quality of the remaining assets may well deteriorate further as the recession deepens in the periphery,” Fitch said in its statement.

Fitch also warned that Germany remains exposed to a deeper recession in its main euro zone trading partners, which would push Germany into a recession. It also said Germany would need to increase its contribution to European bailout funds, on top of guarantees for the European Financial Stability Facility (EFSF), which could push Germany’s debt to GDP ratio over 90 percent, the upper limit that Fitch considers “consistent with a ‘AAA’ rating.”

“Materialization of these risks would put downward pressure on the rating,” Fitch said.—0--


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