Investing.com -- Moody’s Ratings has affirmed the German Government’s local and foreign currency long-term issuer ratings and the local currency senior unsecured ratings at Aaa, maintaining a stable outlook.
The affirmation of Germany’s Aaa ratings and the stable outlook is based on the expectation that Germany’s economy will be bolstered by the recently announced large fiscal package aimed at public infrastructure investment. The decision to increase defense spending also contributes to this positive outlook, demonstrating Germany’s ability to act decisively in the face of economic challenges and increased geopolitical risk.
Germany’s bond market, known as a safe haven, also provides an important buffer during shocks and contributes to the government’s ability to enact a large fiscal stimulus. The country’s local and foreign currency ceilings remain unchanged at Aaa.
In a related development, FMS Wertmanagement AoR’s (FMS-WM) Aaa local and foreign currency long-term issuer and senior unsecured issuance ratings have also been affirmed. FMS-WM, a resolution agency for the state-owned Hypo Real Estate Group, is rated on par with the German sovereign due to an explicit guarantee and a loss compensation obligation from the Financial Market Stabilisation Fund.
The German parliament passed a significant package of infrastructure and defense spending on March 18 and 21, 2025. This package is expected to be implemented by the new government and is likely to have a substantial positive impact on medium-term growth prospects in the country.
The formation of a government reduces political uncertainty, providing a basis for business sentiment and consumer confidence. This is expected to mitigate the negative effects of higher US tariffs, slower global trade and growth, and increased uncertainty about European security.
Moody’s now projects Germany’s real GDP growth at 1.4% in 2026 and 1.3% on average in 2026-30, after two years of economic contraction in 2023 and 2024, and stagnation in 2025. This is approximately 0.5 percentage point higher than the previous forecast, without the fiscal stimulus.
The fiscal package also supports the assessment of Germany’s institutional and governance strength. The relatively swift agreement on a government coalition following the Bundestag election on February 23, 2025, and the announcement of the fiscal package illustrate Germany’s ability to act decisively in light of economic challenges and heightened geopolitical risk.
The significant change in Germany’s fiscal stance will lead to wider general government fiscal deficits. Even with higher growth, Germany’s debt burden will now be higher, reaching close to 72% of GDP by 2030 compared to the previous forecast of 64%, and up from 62.5% in 2024. Despite this, Germany has the fiscal space to accommodate such an expansion and will maintain a much lower debt burden and stronger debt affordability metrics compared to many other large Aaa-rated sovereigns.
The stable outlook reflects the expectation that the new German government will implement the fiscal spending package that has already passed the parliament, which will support the economy through turbulent times.
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