Germany: Risk Assessment

Country Risk Rating

A1 The political and economic situation is very good. A quality business environment has a positive influence on corporate payment behavior. Corporate default probability is very low on average.

Business Climate Rating

A1 The business environment is very good. Corporate financial information is available and reliable. Debt collection is efficient. Institutional quality is very good. Intercompany transactions run smoothly in environments rated A1.


  • Solid industrial base (1/4 of GDP) 
  • Low structural unemployment and apprenticeships
  • Geographic diversity of exports
  • Importance of family exporting SMEs (Mittelstand)
  • Integration of Central and Eastern Europe in the production chain
  • Size of ports of Hamburg, Bremerhaven, and Kiel
  • Institutional structure promoting representativeness and consensus


  • Aging infrastructures
  • Population decline only partly offset by immigration
  • Shortage of engineers and venture capital
  • Extent of dependence on world markets, and in particular European
  • Scale of automotive and mechanical engineering industries
  • Enduring but reducing, lag of eastern Länder
  • High cost of energy and inadequacy of electric grid

Current Trends

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Moderate growth driven by consumption

Growth in 2016 should be around the same pace as in 2015. The positive effects of the depreciation of the euro and the fall in energy prices are fading, whilst the slump in the emerging economies should be offset by additional spending associated with refugees. The role of household consumption as the primary contributor to growth will be confirmed. This will be boosted by the continuing expansion in employment, increasing real incomes thanks to low inflation, higher wages because of the tight skilled labor market, increased pensions and tax cuts, as well as the extension of the minimum wage (8.5 euros an hour). The influx of refugees will also make a positive contribution. This influx is also likely to sustain public spending with the hiring of staff and the construction of social housing. The construction of private homes is expected to continue positive, especially in the major urban centers where prices are rising rapidly, thanks to relatively cheap and easy to access credit. On the other hand however, given the uncertainties concerning the emerging markets, companies will not be increasing their rates of investment. Finally, the contribution from external trade to growth, hitherto slightly positive, will become slightly negative. The growth in exports is vulnerable to changes in the economic outlook in the emerging markets (29% of exports, with 6% going to China) which could not be offset by improved performances in the European (60%) and North American (10%) markets. A number of companies heavily committed to trade with China, notably in the automotive parts, mechanical and electronic components sectors, are likely to suffer because of the Chinese slowdown. The decline in the numbers of insolvencies, almost unbroken since November 2012, could come to an end. However the general financial situation of companies, with low debt levels, will remain strong.

Solid public and external accounts

Despite the expansionist budgetary policy, on a basis of increasing tax reductions for households, higher pensions, family benefits, infrastructure spending for transport, energy and early childhood facilities, as well as expenditure associated with hosting refugees, the surplus in the public accounts will survive. Although the increase in receipts from higher wages and profits will continue at a slower pace, it will remain significant. Unemployment insurance contributions will continue to be paid, whilst the rate of unemployment will remain low (at around 4.5% applying the European definition) despite any increase associated with the problems of integrating the refugees into the labor market. Income from road tolls for heavy goods vehicles will continue to rise with increased numbers of roads involved. With negative rates up to 10 years, the debt service, which will continue to decline, is currently small.

The current account will remain firmly in surplus thanks to the huge balance of trade surplus (more than 8% of GDP). The balance of services should remain in equilibrium, with the tourist deficit being offset by the surplus in corporate services. The balance of revenues is likely to remain in slight surplus, with income from foreign investments exceeding remittances sent to their countries of origin by émigrés and foreign investors.

A Chancellor who remains popular despite criticisms of her immigration policy

The grand government coalition led by the Chancellor, Angela Merkel (CDU), since the elections in September 2013, with Sigmar Gabriel (SPD) as Vice-Chancellor and Minister for the Economy and Energy, has to deal with the arrival of refugees in numbers that reached a million in 2015. Whilst in September 2015, the Chancellor was in favor of opening the borders, under pressure from her right wing, represented by the Bavarian CSU and elements in the CDU and faced with rising concerns within the population, she tempered her position. She is counting on the good will of her European partners to share the burden and, above all, on that of Turkey to slow the numbers arriving on the Greek islands in 2016. Despite criticisms of her migration policy, the Chancellor’s popularity remains high. Without any credible replacement for her, she would seem likely to be leading her government until the elections of 2017. Despite the solid macroeconomic situation, there are still plenty of problems. That of solidarity (financial and other) among the Länder has come to the fore with the hosting of refugees. The declining population, despite the effects of immigration, is a medium term threat for the active population, with women’s participation hampered by the lack of early childhood care facilities. The shortages of engineers and researchers are inhibiting innovation and future productivity, which is clearly linked with the shortages of students in higher education, lured away by apprenticeships. The funding of the transition from 25% to 80% renewable energy by 2050 with, between now and then, the ending of nuclear in 2022 and the modernization of coal-fired power stations remains contentious. The electricity transmission network does not allow optimal exchanges between the north where the wind potential exists and the south where solar energy is produced, leading to capacity losses.


Coface (09/2016)