The rating agency Fitch has confirmed its AA+ credit rating for Austria. However, the rating outlook was downgraded from ‘stable’ to ‘negative’. Due to the negative rating outlook, Austria is at risk of a downgrade in the near future. That would have catastrophic consequences.
This could also make it more expensive to take on new government debt. Fitch also expects the European Union to initiate a deficit procedure, the influential rating agency announced in a statement on Friday evening.
The rating agency cited a higher-than-expected budget deficit in 2024, a deterioration in the macroeconomic and fiscal policy outlook and the looming EU deficit procedure as the main reasons for the change in outlook.
Political instability as an accelerator
Fitch also referred to the failed coalition negotiations between ÖVP, SPÖ and NEOS and the ongoing talks between FPÖ and ÖVP. “The protracted government formation and political fragmentation make it difficult to implement significant spending cuts and hamper efforts to stimulate the ailing economy,” the credit watchdogs wrote in their ratings report.
The political uncertainties following the 2024 parliamentary elections would make financial and economic policy decisions even more difficult.
According to Fitch, without fiscal consolidation by the future government, the budget deficit will worsen to four percent of gross domestic product (GDP) this year. Without austerity measures, the rating agency expects public debt to rise to 85 percent of GDP by 2028 (see chart above). Last year, Austria’s public debt amounted to 79 percent of GDP.
Austria is threatened with an EU deficit procedure
Fitch expects an EU deficit procedure to be initiated. It is “unlikely that a new government will take the necessary fiscal consolidation measures” as “the macroeconomic outlook is already weak,” the rating agency said in its report.
According to Fitch, the positive factors for Austria’s creditworthiness are its diversified domestic economy, the reserve currency status of the euro, strong political and social institutions and solid external finances. The rating agency does not expect a gas price shock in this country as a result of the end of gas supplies from Gazprom to Austria. The credit rating watchdogs also cited the erosion of Austria’s international competitiveness as negative.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
