Frankfurt am Main, January 29, 2021 -- Moody's Investors Service ("Moody's") has today affirmed the Government
of Germany's Aaa long-term issuer rating. Concurrently,
Moody's has affirmed Germany's Aaa senior unsecured rating.
The outlook remains stable.
The key drivers for today's rating action are the following:
(1) Germany's very high ability to apply effective countercyclical
fiscal policies and deploy its large fiscal buffers to limit the impact
of the COVID-19 shock. Moody's assessment of high
economic strength is supported by Germany's large and very competitive
economy that leads to a very high per-capita income.
(2) Germany's exceptional debt affordability that offsets the impact
of rising public debt with respect to Moody's assessment of fiscal
strength.
(3) Very strong institutions and governance as demonstrated by Germany's
high shock-absorption capacity and credible track record of reversing
adverse debt trends in the past. Moody's views this rating
driver as a governance factor under the rating agency's ESG framework.
The stable outlook reflects Moody's view that downside risks to the country's
very strong credit profile are effectively mitigated by its very high
economic strength, very favourable fiscal metrics and the capacity
of the country's institutions to manage shocks and to address long-term
challenges.
Germany's local and foreign currency country ceilings remain unchanged
at Aaa.
In a related rating action, Moody's has today affirmed FMS Wertmanagement's
(FMS-WM) Aaa long-term issuer rating. Concurrently,
FMS-WM's senior unsecured, senior unsecured medium-term
note (MTN) program and senior unsecured shelf rating have also been affirmed
at Aaa, (P)Aaa and (P)Aaa, respectively. FMS-WM's
short-term issuer rating, commercial paper program rating,
deposit note/CD program rating and the other short-term rating
have been affirmed at Prime-1, Prime-1, Prime-1
and (P)Prime-1, respectively. The outlook remains
stable.
FMS-WM is a resolution agency or "bad bank" scheme for 100%
state-owned Hypo Real Estate Group, which was created under
the Financial Market Stabilisation legislation in Germany. FMS-WM
is rated on par with the German sovereign because of an explicit guarantee
and a loss compensation obligation from the Financial Market Stabilisation
Fund vis-à-vis FMS-WM, which is ultimately
an obligation of the German sovereign.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL439415
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
RATIONALE FOR THE AFFIRMATION OF THE Aaa RATINGS
FIRST DRIVER: ONLY LIMITED IMPACT OF THE COVID-19 SHOCK ON
GERMANY'S VERY HIGH ECONOMIC STRENGTH
The first driver of today's rating action relates to Germany's
high economic strength based on its large and very competitive economy.
In the current environment, Germany possesses the ability to apply
an effective countercyclical fiscal policy based on its large fiscal buffers
to limit the impact of the economic shock of the COVID-19 pandemic.
The large support packages of the government, which amount to almost
40% of GDP and are among the largest globally, provide significant
income support for households' and companies' during the crisis
and support the recovery.
Job retention schemes that include the short-time work scheme saved
around 2 million jobs or around 5% of employment in 2020.
As a result, Moody's expects the supply side of the economy
to remain mostly intact and the pandemic shock not to have a lasting impact
on the medium-term growth prospects of the German economy.
Against this backdrop, Moody's forecasts real GDP to rebound
by 3.0% in 2021 after a contraction of 5.0%
in 2020.
Moody's anticipates that Germany will recover pre-crisis
2019 GDP levels by 2022. However, the risks to the baseline
forecast remain tilted to the downside. A resurgence of infection
waves or delays in rolling out the vaccines may result in more stringent
restrictions and prolonged lockdowns, weighing on economic growth.
A significantly slower global economic recovery and an increase in protectionism
are additional downside risks to Moody's forecast, given Germany's
relatively high openness and high integration with global value chains.
That said, Moody's assesses the underlying economic strength
of Germany as very high, supporting the Aaa rating, irrespective
of Germany's relatively low trend GDP growth compared to the Aaa-rated
median (1.3% vs. 1.9%) and the medium-to-long
term challenges related to unfavorable demographic trends and to the German
car sector due to harsher environmental standards, trade tensions
and possible disruptions caused by new technologies and emerging competitors.
The German economy is the world's fourth largest economy and the
EU's largest. With respect to wealth, Germany ranks
in the top 12% globally as measured by GDP per-capita in
purchasing power parity (PPP) terms. Germany is also a highly competitive
economy with respect to its large industrial sector. The economy
benefits from an ample base of family-owned small and medium-sized,
export-led companies ('Mittelstand'). These
companies frequently rank as world leaders in their niche markets and
form the backbone of Germany's strong industrial sector. The high
diversification of German exports by goods and destinations offer a high
resilience to regional or goods-specific shocks. Germany
scores well in indicators measuring productivity. This can be highlighted
by very high scores in World Economic Forum (WEF) Infrastructure and WEF
Innovation.
SECOND DRIVER: EXCEPTIONAL DEBT AFFORDABILITY OFFSETS THE IMPACT
OF THE SIGNIFICANT INCREASE OF PUBLIC DEBT
The second driver of today's rating action is based on Germany's
exceptional debt affordability that offsets the impact of rising public
debt with respect to Moody's assessment of fiscal strength.
Germany's public debt has significantly increased as a result of
both the deep recession and the deployment of sizeable support packages
to soften the COVID-19 shock. The increase in general government
debt by 9.5 percentage points to reach 69.1% of GDP
in 2020 is similar to the average increase of Aaa-rated sovereigns.
Germany entered the pandemic with favorable fiscal metrics, including
positive fiscal balances between 2012 and 2019 that provided the government
with ample room for maneuver. By year-end 2020, the
country's debt-to-GDP remains 13.2 percentage
points below the peak of 2010.
Moody's expects the rebound in GDP growth and phasing out of the
support measures will allow for a reduction of the debt-to-GDP
ratio to 67.0% in 2022. In addition, Moody's
expects that Germany will begin its fiscal consolidation process and compliance
with both the EU's and its own fiscal rules again in 2022,
upon expiration of the escape clauses relied on in 2020 and 2021.
Among the Aaa-rated sovereigns, Moody's only expects
the debt-to GDP ratio to decrease by 2022 compared to 2020 in Germany,
Denmark (Aaa stable) and Norway (Aaa stable).
The ongoing, favourable debt-affordability trend of Germany
offsets the impact of the temporary increase in public debt on Moody's
assessment of fiscal strength. Debt affordability metrics assume
a greater importance in Moody's assessment of a reserve currency
country's fiscal strength. Safe-haven flows and the
ECB's expansionary monetary policy have further contributed to an
improvement of the already-strong funding conditions. The
government's bonds benefit from record low yields with the whole
yield curve out to 30 years in negative territory. As a result,
Moody's expects debt affordability -- as measured by interest
payments relative to revenue -- will improve in 2020 and thereafter
to an average of 1.1% in 2021-22 from 1.7%
in 2019 and an average of 3.6% over the past 10 years.
THIRD DRIVER: VERY HIGH STRENGTH OF INSTITUTIONS AND GOVERNANCE
The third driver of today's rating action is based on Germany's
very high strength of German institutions and overall governance.
The country's institutions rank among the strongest and most transparent
globally. In Moody's view, the effectiveness of Germany's
fiscal, monetary and macroeconomic policies is very high.
Germany's public finances are subject to various national rules such as
the debt brake as well as various European rules. The government
has a strong track record demonstrating commitment to those rules as evidenced
during the European debt crisis.
Germany has proved its ability to absorb very large structural shocks
and demonstrated its ability to reverse debt trends on several occasions
like during reunification, the low-growth environment in
the early 2000s, the global financial and euro area debt crises.
For example, the debt-to-GDP ratio of Germany decreased
by 22.7 percentage points between the peak in 2010 and 2019 which
was the strongest debt reduction among Aaa-rated sovereigns.
Germany is part of the European Monetary Union and has the largest capital
contribution to the European Central Bank's (ECB) capital. Low
and stable inflation expectations underpin the European Central Bank's
monetary policy credibility. However, the ECB's expansionary
policy in recent years has increased financial stability risks given Germany's
position in the business cycle.
The quality of legislative and executive institutions in Germany is very
high. This is reflected in a very strong scoring globally in the
Worldwide Governance Indicators for government effectiveness and regulatory
quality. The quick actions and well-designed support measures
of the government aimed at limiting the impact of the COVID-19
pandemic on medium-term growth also demonstrate the very high quality
of Germany's legislative and executive institutions.
Moody's assessment of civil society and the judiciary is also robust
as Germany actively supports civil society engagement and has a robust
legal framework that complies with international standards and effective
access to justice. Law enforcement is highly predictable and consistent.
This is reflected in Germany's favorable position in the Worldwide
Governance Indicators for rule of law, control of corruption as
well as voice and accountability.
RATIONALE FOR STABLE OUTLOOK
The stable outlook on Germany's Aaa rating reflects Moody's view
that downside risks to Germany's very strong credit profile,
which include the sizeable coronavirus' contraction impact, are
effectively mitigated by its high economic strength, very favorable
fiscal metrics, and the capacity of the country's institutions
to manage shocks and to address long-term challenges, including
rising demographic pressures.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Germany's positive (CIS-1) ESG Credit Impact Score reflects
low exposure to environmental and social risks as well as very strong
governance. Moreover, Germany's capacity to respond
to costly environmental hazards or social demands is very high.
This is based on Germany's very high resilience score based on the
country's high-income levels, very large fiscal capacity
and very high quality of governance.
The E issuer profile score is neutral to low (E-2), reflecting
low exposure to environmental risks across all categories. Moody's
views that large industrial sectors such as automobile are susceptible
to carbon transition risks, though headway has been made in pursuit
and adoption of green technology.
Moody's assesses Germany's S issuer profile score as neutral
to low (S-2) reflecting low exposure to social risks across most
categories and with particularly strong scorings in health & safety
and access to basic service. In line with many advanced economies,
Germany faces long-term economic and fiscal pressures from unfavorable
demographic trends as highlighted by a decreasing working-age population
and a relatively high dependency ratio. However, further
labor immigration, an ongoing increase of the pension entry-age
and Moody's expectation that the government will implement further
measures to improve the long-term sustainability of the pension
system in the coming years will soften the negative impact of demographic
trends on Germany's credit profile. The gradual increase
of the statutory pension entry age to 67 years from 65, which started
in 2012, will be completed in 2029.
Germany's very strong institutions and governance profile support
its rating, as captured by a positive G issuer profile score (G-1).
GDP per capita (PPP basis, US$): 56,226 (2019
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 0.6% (2019 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 1.5%
(2019 Actual)
Gen. Gov. Financial Balance/GDP: 1.5%
(2019 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 7.1% (2019 Actual) (also
known as External Balance)
External debt/GDP: 144.2% (2019 Actual)
Economic resiliency: aa1
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 26 January 2021, a rating committee was called to discuss the
rating of the Germany, Government of. The main points raised
during the discussion were: The issuer's economic fundamentals,
including its economic strength, have not materially changed.
The issuer's institutions and governance strength have not materially
changed. The issuer's fiscal or financial strength, including
its debt profile, has not materially changed. The issuer's
susceptibility to event risks has not materially changed.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
WHAT COULD CHANGE THE RATING DOWN
Germany's Aaa government bond rating would come under downward pressure
if Moody's was to observe a material and prolonged deterioration
in its economic strength. Such an erosion could result from failure
to address rising demographic challenges, as well as from competitive
pressures, in particular on the automotive sector, caused
by new competitors, trade tensions, environmental regulation
and technological change.
Additionally, the rating could come under pressure in the event
of a sharp increase in the government debt burden which Moody's
deemed as unlikely to be reversed.
Separately, a perception of euro-area fragmentation prompted
by negative developments in a core euro area country would be credit negative
for all euro area member countries and would also exert pressure on Germany's
rating.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are a mix of solicited
and unsolicited credit ratings. Additionally, the List of
Affected Credit Ratings includes additional disclosures that vary with
regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL439415
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• EU Endorsement Status
• UK Endorsement Status
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Lead Analyst
• Releasing Office
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Heiko Peters
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Alejandro Olivo
MD-Sovereign/Sub Sovereign
Sovereign Risk Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
