Germany Retains AAA Credit Rating Despite Rising Deficit Outlook

S&P Global Ratings has reaffirmed Germany’s sovereign credit rating at AAA/A-1+ with a stable outlook. The agency cited Germany’s strong fiscal fundamentals, low net debt levels, and strong external position as reasons for maintaining the top-tier rating, even as the country’s economic growth lags behind its European peers.

This confirmation comes amid broader concerns about rising government spending and a loosening fiscal stance, as Germany launches an ambitious multi-year investment program.

New Spending Plans to Push Deficit Higher

Berlin recently unveiled a significant investment package focused on defense, infrastructure, and energy transition. S&P estimates that this plan could push Germany’s general-government deficit beyond 3.5% of GDP by 2027, far exceeding previous forecasts. Fitch Ratings projects the deficit may reach as high as 4 to 4.5%, pushing the debt-to-GDP ratio closer to 70%.

Despite these figures, both rating agencies view the additional spending as a potential catalyst for growth. Analysts suggest that the investments could lift Germany’s annual GDP growth by around 0.4 percentage points through 2027, offering a pathway out of the current stagnation.

Structural Strengths Support Top Rating

Germany’s structural strengths continue to underpin its credit profile. Key factors include:

Moderate net debt levels
A large and persistent current-account surplus
The safe-haven status of German Bunds

S&P also noted that higher public investment, especially if managed transparently within an adjusted “debt brake” framework, could improve long-term productivity and domestic demand. This, in turn, would enhance creditworthiness rather than undermine it.

Market Response and Outlook

Financial markets appear to be aligned with this outlook. Bund yields have risen only modestly in response to the spending plans, indicating continued investor confidence. Germany remains the eurozone benchmark for low-risk sovereign funding, preserving its position within the exclusive group of AAA-rated countries.

What to Watch Next

Going forward, markets will closely monitor two key developments:

Political debates over adjusting Germany’s constitutional debt brake
The expected return of EU fiscal rules in 2026

While increased bond issuance may steepen yield curves, analysts believe that Germany’s reputation for fiscal discipline and structural resilience will continue to provide a buffer.

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