Scope Ratings reviews its ratings either yearly, or at least every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Scope performs monitoring reviews to determine whether outstanding ratings remain proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology/ies, latest developments, and the rated entity’s financial and operational aspects relative to similarly-rated peers; or through targeted reviews of an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Federal Republic of Germany (AAA/Stable; S-1+/Stable) on 29 June 2021. The review resulted in no action on the assigned ratings. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

Germany’s AAA/Stable ratings reflect its wealthy, large and diversified economy, solid fiscal policy framework, strong track record of fiscal discipline and highly competitive external sector. Increasing pension liabilities, low domestic investment in the private and public sector, labour shortages due to adverse demographics and a lack of skilled labour remain challenges to the rating. Germany’s economy contracted by around 5% in 2020, with a large fiscal stimulus program dampening the impact of imposed economic restrictions. The economy is expected to rebound rapidly, reaching its pre-pandemic level of output in 2022. Longer-term, the main credit challenges are i) transition risks for energy-intensive industries related to carbon-neutrality targets and weaknesses in the digitalisation process of the economy relative to peers; and ii) high pension liabilities in combination with an aging workforce.

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced over the next 12 to 18 months.

The rating/Outlook could be downgraded if, individually or collectively: i) protracted fiscal deterioration and/or insufficient reforms on pension commitments result in a rising trajectory of debt-to-GDP ratios; ii) structural reforms are insufficient to address challenges such as in digitisation, education and the transition towards a low carbon economy, weighing on growth potential; and/or iii) there is a sharp increase in sovereign risk in the euro area leading to the materialisation of contingent liabilities. 

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Ratings, 9 October 2020) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Eiko Sievert, Director.

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