Germany’s AAA credit rating could be at risk in the long term unless the country addresses its ongoing structural weaknesses, according to Eiko Sievert, CEO of European rating agency Scope Ratings, speaking to Reuters in an interview.
Key Facts
While weaker economic growth itself isn’t an immediate threat to Germany’s AAA rating—even if stagnation persists into 2025—the pressure on the rating could rise if the country fails to address the root causes of its underperformance.
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Germany’s economy shrank for the second consecutive year in 2024, with its export sector suffering from sluggish global demand and growing competition, particularly from China.
Sievert highlighted several structural issues that need urgent attention, including high energy prices that undermine Germany’s production and export capabilities, insufficient investment in infrastructure, education, and digitalisation, and the lack of meaningful labor market reforms that erode international competitiveness.
Despite Germany’s relatively low government debt, which stands at 63% of GDP, this figure alone won’t guarantee the country’s AAA rating, Sievert explained. The rating takes into account other important factors as well.
What To Follow
When compared to other AAA-rated countries, Germany’s debt level is relatively high. The average debt for other countries within this rating group is just 36% of GDP, making Germany the highest in terms of debt within the AAA cohort.
Germany’s “debt brake” mechanism, which limits public borrowing to 0.35% of GDP, remains a cornerstone of the country’s fiscal policy. However, Sievert suggested that reforming this mechanism to allow for more public investment aimed at driving growth would be a positive move.
“If Germany is to reverse the gradual erosion of its competitiveness, the next government must prioritize a significant increase in investment,” Sievert said, urging policymakers to act swiftly.
