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Analyst
He Yi
heyi@dagongcredit.com
Sovereign Credit Rating
Local Currency / outlook AA+/ stableForeign currency /
outlook AA+/ stable
Rating
time October 2010
Rationale
Dagong assigns AA + to the local and foreign currency sovereign credit
ratings for the Republic of Austria ("Austria"), based on the comprehensive
analysis of various rating elements, which affect the country's debt burden and
the risk of repaying future debt.
Because of the global financial crisis, the debt outstanding of Austria's
general government has a more rapid growth trend. Compared with 2008, the debt
outstanding of general government increased by 9.1% in 2009, the ratio of debt
to GDP amounted to 66.5%, lower than the average level of 84.0% in the Euro
zone, and the ratio to general government's revenue was of 145%. In 2009, the
increasing of Austrian government debt was mainly due to the additional
expenditure for relieving the banking sector, and to the expenditure of
stimulating the economy under the crisis. In 2010, Austrian general government
has to increase debt burden in order to stimulate the economy continuously, the
debt outstanding is expected to reach 210 billion euros, with the debt ratio
rising to 74.9%.
As a developed Western industrial country, Austria had maintained a strong
solvency before the international financial crisis. But after being affected by
the international financial crisis, its capacity has been weakened. The main
reasons are as follows:
Austrian political status is relatively stable. But due to the social changes
in recent years, the original parliamentary mechanism based on two main parties
has changed, which affected the implementing efficiency of certain economic
policies;
Austria has a high level of economic development, but its heavy reliance on
external markets reduced its resistance to impact, and economic growth was
severely affected in the current global financial crisis. But in 2010 its
economy is expected to grow slightly;
Because Euro is the local currency, Austria possesses a strong investment and
financing capacity and exchange capacity. The Austrian banking system has always
been able to support the economic growth, but current global financial crisis
has affected the stability of the Austrian banking system;
To accommodate the steady economic growth for many years, Austria has a
narrowing trend in the size of the fiscal deficit and in the scale of debt. But
after the outbreak of the global financial crisis, this trend is changed, which
eroded the solvency of the Austrian local currency and foreign currency.
Outlook
Austria has strong national management strength, economic strength, financial
strength, fiscal strength and foreign exchange strength. The financial system
has strongly supported Austria’s high level of economic growth over the years
while achieving self-development. As a member of the Eurozone, the fact that
Austria complies with the EU Stability Pact plays an active role to the
stability of the Austrian economy over the years. But the national development
strategies generated the problem of high external dependence of economic growth
and financial development, which was fully shown in the current global financial
crisis and affected the solvency of Austria. Currently, despite the negative
impact of the international financial crisis, the economy began to show slight
growth in Central and Eastern Europe. As Austria's main export trade nation,
Germany has shown a food sign of economic recovery. Since mid-2010 Germany's
import has started recovery growth. Compared with the previous year, its import
is expected to increase by 9.5% in 2010; plus the strategy of diversification of
the foreign trade area that Austria is actively pursuing; all these factors
offer an assurance for the Austrian economy to keep stability and seek recovery
in the next 1 to 2 years. Therefore, Dagong assigns the stable outlook for
Austria's local currency and foreign currency credit rating in the next 1-2
years.
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