Austria's creditworthiness: Fitch lowers rating to AA - what now?

Austria's creditworthiness: Fitch lowers rating to AA - what now?

The rating agency Fitch has downgraded Austria's long-term foreign currency emission rating from "AA+" to "AA". The outlook remains stable, which means that Austria remains in the investment grade category. This reduces the country's creditworthiness from very high, but the risk of default remains low. This downgrade has already had an impact on the market: loans are becoming more expensive, which indicates the fiscal and macroeconomic challenges that the country must currently cope with. According to the press, the downgrading also reflects the increase in public debt.

A central problem is the budget deficit for 2024, which is 4.7% of the gross domestic product (GDP) and is therefore significantly higher than 3.7%. This situation could also endanger future consolidation efforts, especially since Fitch expects that the public debt will increase in relation to GDP in the medium term. It is estimated that the ratio of government debt to GDP will increase to 81.8% by the end of 2024, which is above the previously forecast 76.6%.

economic perspectives and forecasts

FITCH assumes that Austria's economy will stagnate in 2025, followed by a slight growth in 2026. Current forecasts show that the economy could shrink by 1.2% in 2024, which would be an economic contraction. This development leaves the economic output of 3.3% below the level before the Ukraine War, which makes it weakest in the EU. According to State State Statistics, such parameters are important for the assessment of the state's financial position.

The new Austrian government has submitted a clear consolidation program to meet the challenges. Fitch recognizes the efforts to cope with the deficit and the specification of the program, which aims to minimize negative effects on the overall economy. However, persistent economic weakness could endanger the growth of the income and thus undermine the consolidation efforts. This remains a central risk of the country's fiscal stability.

debt and interest rates

A positive aspect that FITCH emphasizes is the average term of the government debt. This is 11.4 years and is the longest in the European Union. Despite the challenge of getting the public debt under control, Fitch predicts an increase in interest payments in relation to the income from 2.9% in 2024 to 3.6% in 2026.

The coming months will be crucial to see whether the government's measures can stabilize the tense budget and the economic situation. In view of the current challenges, Austria remains in a critical phase of fiscal and economic adaptation.