S&P warns ageing could hit Germany’s rating

GERMANY – Rating agency Standard & Poor’s has warned that Germany’s credit rating could come under threat if it doesn’t face up to the pressures of population ageing.

"More fundamental reforms, to put public finances in order and to restore the country's long-term growth prospects are needed to secure Germany's rating in the medium term, and to face the fiscal pressures that will arise as a consequence of ageing in the long term," said analyst Kai Stukenbrock.

“Failure to push the reform process further, or a more expansive fiscal stance, would put increasing downward pressure on the ratings.”

S&P affirmed its AAA long-term rating on Germany and said the outlook is stable.

Stukenbrock said Germany is falling behind its AAA-rated peers in terms of fiscal and economic performance. "Growth prospects are among the weakest in the rating category."

S&P said Germany took a first important step in tackling the backlog of reforms in 2003 and early-2004.

“Nevertheless, the need for further reforms remains high, particularly in the areas of labour market, health care, and pension reform.” It said the last-minute breakdown of talks between the government and the opposition to initiate reform to Germany's federal system late last year was a “significant setback”.

It added that fiscal consolidation is proving “very painful and difficult” in Germany.

S&P says it expects the reform process to continue, albeit subject to likely delays prior to the general elections in 2006.

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