Limited downside risks from German elections
The rating agency DBRS considers the outcome of the German elections will not materially affect the credit profile of the issuer nor lead to deviations from the current policy mix and the strong commitment to Europe.
DBRS could change the trend on the Federal Republic of Germany’s ratings to Negative from Stable in the event of a deterioration in growth and fiscal prospects severe enough to place the public debt-to-gross domestic product (GDP) ratio on a persistent upward trajectory. Moreover, a material crystallisation of contingent liabilities could exert pressure on the ratings.
If recent opinion polls prove correct, it looks increasingly likely that the Christian Democratic Union (CDU)/Christian Social Union (CSU) will lead the next government coalition, still falling short of an absolute majority in parliament. The CDU/CSU could lead different coalition line-ups. Although no major policy changes are expected, the next government could use part of Germany’s fiscal room to cut taxes and/or marginally increase spending (e.g., social or security). A less likely scenario, given the current polls, would be a Social Democratic Party (SPD)-led coalition with left-leaning parties. While this could lead to a more expansionary fiscal policy, DBRS does not expect a significant deviation from the