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Germany's (Aaa stable) economic recovery will continue in 2016, driven by relatively strong domestic demand, says Moody's Investors Service in a new report.
Moody's report, entitled "Government of Germany -- Aaa Stable," is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. The rating agency's report is an update to the markets and does not constitute a rating action.
"We expect a slight acceleration of Germany's real GDP growth to 1.8% in 2016, benefiting from robust domestic demand supported by a solid labour market and the further drop in oil prices," says Thorsten Nestmann, a Senior Credit Officer at Moody's.
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"Downside risks mainly stem from a less favourable external environment, in case of a more protracted slowdown in China and other emerging markets."
In the long term, Germany's ageing population and declining workforce could weigh on the economy and put pressure on the sustainability of social security systems.
Moody's notes that the refugee crisis is unlikely to have material near-term fiscal implications for Germany. The fiscal costs related to providing food and shelter and to supporting integration with language courses and other measures are manageable at below 0.5% of GDP.
In addition, Germany's fiscal outlook over the 2016-19 period remains stronger than in highly rated peers such as the US (Aaa stable), the UK (Aa1 stable) and France (Aa2 stable). The country's general government fiscal balance has outperformed the Aaa-median since 2011.
The rating agency views Germany's fiscal consolidation as positive and expects it to be supported by the fiscal rules for central and state governments. The currently ongoing reform of the fiscal equalization system (Länderfinanzausgleich) will likely have a credit neutral effect on Germany's sovereign creditworthiness.
Germany's debt burden is relatively high with a debt-to-GDP ratio of around 71% in 2015. At the same time though, Germany is one of the few euro area countries where the debt-to-GDP ratio has declined significantly in recent years, and we expect Germany to approach the Maastricht threshold of 60% of GDP by around 2020.
