As Germany Becomes The Old Man Of Europe, The Sovereign Ratings May Be Affected Over Time

Germany?s demographic outlook appears daunting. Aging and birth-rate statistics point to a population decline of 16% to 67.5 million by 2060 in a scenario with average annual net immigration of 130,000, which is somewhat lower than the historical average. Without sufficient policy action to cut the impact of the forthcoming wave of retirees on public finances or to maintain working population numbers, this could weigh on Germany's public finances and therefore on the sovereign credit ratings over time. In our view, the recent influx of refugees from war-stricken areas in the Middle East plus the large numbers of young people arriving from the eurozone periphery since the onset of the eurozone crisis may help Germany alleviate its demographic problems somewhat.

... Aging and birth-rate statistics point to a population decline of 16% to 67.5 million by 2060 in a scenario with average annual net immigration of 130,000, which is somewhat lower than the historical average. Without sufficient policy action to cut the impact of the forthcoming wave of retirees on public finances or to maintain working population numbers, this could weigh on Germany's public finances and therefore on the sovereign credit ratings over time. In our view, the recent influx of refugees from war-stricken areas in the Middle East plus the large numbers of young people arriving from the eurozone periphery since the onset of the eurozone crisis may help Germany alleviate its demographic problems somewhat. However, we believe that this population surge will provide only temporary relief and critically depends on the new arrivals' ability and willingness to become part of the German labor market. This, in turn, may also influence whether...

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