Fitch maintains Germany's AAA rating; warns of euro area concerns

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Fitch Ratings has affirmed Germany's top long-term foreign and local currency issuer default ratings (IDRs) at "AAA" due to the country's sustained growth during tough economic times. The ratings agency also maintained the country's stable outlook.

However, Fitch stresses that the resolution of the euro area crisis remains a key factor needed to ensure stability in the German economy.

While Fitch believes exposure of the German banking sector to "peripheral euro area economies is relatively small as a percentage of total assets", it is concentrated in a number of banks which could pose "greater systemic risks if called on".

In addition, although the financial sector has stabilised since 2009, with improving profitability, capital ratios and asset quality, "the state-owned Landesbanken sector, where restructuring is proceeding, is still highly leveraged and largely reliant on wholesale funding". Fitch considers that additional restructuring and consolidation is needed in this sector before it can stand on a more solid footing.

Fitch has affirmed Germany's country ceiling at "AAA" and short-term foreign currency IDR at "F1+".

Moody's Investors Service and Standard & Poor's also have Germany on the highest credit rating.

"The affirmation of Germany's ratings reflects longstanding credit strengths and the robust growth performance of about 3.5% in 2010 that followed the steep GDP decline of 2009," says Maria Malas-Mroueh, director in Fitch's sovereign group. "This strong performance is set to continue for 2011, despite a weak Q2 outturn, which was partly due to temporary factors, putting GDP at just above its pre-crisis level. Growth is expected to moderate in the medium term," adds Malas-Mroueh.

Along with robust growth, the German economy has also achieved "a strong and sustained" labour market performance, notes Fitch.

Unemployment has declined for 26 consecutive months, reaching 7% in June, the lowest level since German reunification.