Credit rating at risk

Agency sounds the alarm: outlook now “negative”

The national debt could have an impact on Austria's credit rating.

(Bild: EVA MANHART)

The rating agency Fitch has confirmed its AA+ credit rating for Austria. However, the rating outlook has been lowered from "stable" to "negative". With a negative rating outlook, Austria is threatened with a downgrade in the near future. This would have catastrophic consequences.  

This could also make it more expensive to take on new government debt. In addition, Fitch expects the European Union to initiate an excessive deficit procedure, the influential rating agency announced in a press release 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 threat of EU deficit proceedings as the main reasons for the change in outlook.

Political instability as a fire accelerator
Fitch also referred to the failed coalition negotiations between the ÖVP, SPÖ and NEOS and the ongoing talks between the FPÖ and ÖVP. "The protracted process of forming a government and the political fragmentation are making it difficult to implement significant budget cuts and are hampering efforts to stimulate the weakening economy," the credit rating watchdogs wrote in their rating report.

The political uncertainties following the parliamentary elections in 2024 would make financial and economic policy decisions even more difficult.

According to Fitch, without budget consolidation by the future government, the state budget deficit will deteriorate to four percent of gross domestic product (GDP) this year. Without austerity measures, the rating agency expects public debt to rise to up to 85% of GDP in 2028 (see chart above). In the previous year, Austrian government debt amounted to 79% of GDP.

Austria faces the threat of EU deficit proceedings
Fitch expects EU deficit proceedings to be initiated. It is "unlikely that a new government will take the necessary measures to consolidate the budget" as "the macroeconomic outlook is already weak", the rating agency said in its report.

According to Fitch, Austria's diversified domestic economy, the reserve currency status of the euro, strong political and social institutions and solid external finances are positive for the country's credit rating. The rating agency does not expect a gas price shock in Austria due to the end of Gazprom's gas supplies to the country. The credit rating watchdogs also cited the erosion of Austria's international competitiveness as a negative factor.