German Debt Rating Stays at Highest Level

Douglas A. McIntyre

S&P recently issued its latest opinion of German debt, giving it the highest grade possible. It also said the rating was “stable.” This makes the sovereign paper among the safest investments in the world.

The rating has become more important recently as instability in the economies of some other large nations has caused concerns about their debt or even downgrades. The most recent example of this is Italy, which has a mounting pile of sovereign debt and a deteriorating economy.

S&P commented:

The ratings are supported by Germany’s institutional stability and consensus for prudent fiscal policies. Our ratings also reflect the country’s high prosperity and competitive economy, supported by very strong current account and fiscal surpluses and the ECB’s credible monetary policy. Germany’s large net external creditor position should allow the country to withstand even severe financial and economic shocks. At the same time, Germany’s general government debt has been declining further both in nominal terms and as a share of GDP.

According to the International Monetary Fund, Germany ranks fourth among all nations in nominal gross domestic product (GDP), behind the United States, China and Japan. It could be argued that the U.S. and Chinese economies could be eroded by trade wars. Germany has little exposure to that trouble.

Germany’s GDP per capita is also very high, ranked 27th out of 229 nations, according to the CIA Factbook. Its figure is $50,400 based on 2017 estimates. This puts it just behind Sweden at $51,500 and just ahead of Australia at $50,300.

Germany’s rating is likely to remain as is for the foreseeable future:

The stable outlook reflects that we currently do not see any likely scenarios that could prompt us to lower our ratings on Germany over the next two years. It also reflects our expectation of ongoing overall consensus on prudent fiscal and economic policies. Consequently, fiscal and external buffers against potential economic and financial shocks will remain strong, as net general government debt in relation to GDP remains on a firm downward trend in light of fiscal surpluses and the economy remains in a strong net external creditor position.

That makes it one of the few very safe havens if the global economy falters.