Bank Chief Economist Fears: Germany Is at Risk of Losing “AAA” Rating

BySamson Ononeme

Aug 16, 2023 ,
Germany Is at Risk of Losing “AAA” Rating - Bank Chief Economist

Key Insights

  • Moritz Kraemer, chief economist at Landesbank Baden-Württemberg (LBBW), warns that Germany could lose its AAA rating due to economic and demographic challenges.
  • Although only nine countries, including Germany, have an AAA rating and the US recently lost it, Kraemer sees the practical impact of such a loss as limited.
  • Nevertheless, he emphasizes the importance of the rating agencies’ forecasts for Germany’s financing conditions.

Moritz Kraemer, chief economist at Landesbank Baden-Württemberg (LBBW), fears that Germany could lose its AAA rating.

That’s what the former chief analyst for country ratings at the world’s largest rating agency Standard & Poor’s (S&P) says in an interview with the business magazine “Capital”.

A AAA rating is the highest credit rating assigned by credit rating agencies. It signals that a debtor – which can be a company, a bank or a state – poses an extremely low risk of not meeting its financial obligations.

Kraemer explains that Germany’s export model is no longer as successful as it used to be and that demographic change is also causing a more pessimistic view of the development of the German economy. “Germany will therefore lose the top rating AAA in the medium to long term,” says Kraemer.

The USA has already lost its AAA rating

Besides Germany, there are only eight other countries that have an AAA rating. Recently, MarketsXplora reported that the rating agency Fitch downgraded the US credit rating from the highest level AAA to a notch lower. In this specific case, however, the loss is not very dramatic for the USA, says the economist.

That’s how it is when I only have an A on the report card and no longer an A+. It’s more about the loss of prestige and political exploitation.

The consequences for Germany would hardly be felt in practice, says Kraemer. “That would not trigger an earthquake, even if we went down two notches.” But: the forecast of the rating agencies is also decisive. In case of doubt, Germany’s financing conditions could deteriorate.

Samson Ononeme

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