LONDON (Reuters) – Germany’s top AAA credit rating could face pressure in the longer run if a vast spending effort is not offset by consolidation measures, or doesn’t lead to a lasting improvement in growth, Fitch Ratings said on Tuesday.
The German parliament on Tuesday approved a massive surge in borrowing to boost infrastructure investments and to ease constitutionally enshrined borrowing rules to allow higher spending on security.
“The extent of broader economic reforms in the coalition plan and the future shape of the domestic debt-brake rule, which the coalition plans to reform more fully by end-2025, will be indicators of the relative importance given to strong fiscal metrics,” the agency said.
The ratings agency said it expects 900 billion to 1 trillion euros ($980.91 billion-$1.09 trillion) in additional spending from Germany over the next decade, equal to just over 20% of output.
Fitch estimates Germany’s fiscal deficit could rise to 4-4.5% of output by 2027, from 2.6% last year, which would bring the country’s debt towards 70% of output, the highest among AAA-rated countries. This would still be below a peak 80% for Germany in 2010.
Fitch said the spending could add around 0.4 percentage points to GDP in 2025-2027, but expects U.S. tariffs to offset that this year, leading to just 0.1% growth, lower than what the agency expected in late February. It forecasts growth of 1.1% next year.
“The additional spending will support growth and enhance competitiveness, but it is unlikely to substantially improve Germany’s longer-term growth prospects in isolation,” Fitch said, adding that would require structural reforms and reorientation towards more competitive sectors.
($1 = 0.9175 euros)
(Reporting by Yoruk Bahceli; editing by Amanda Cooper)
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