European business is unlikely to be affected by Germany’s upcoming general election, according to Moody’s, as the credit profiles of domiciled non-financial corporates (NFCs) will remain resilient whatever the outcome.
Amid the perceived uncertainty of the vote, says the rating agency, the main advantage that Germany enjoys is the size and geographical diversity of its debt issuers.
Domestic revenue sources, Moody’s points out, typically comprise a low share of German firms’ group income.
As such, any changes to corporation tax rates, economic growth expectations or the consumer environment would lead to only minor changes in profitability or credit quality.
Moody’s notes that all of Germany’s major parties will continue to support the nation’s energy transition goals and climate-change targets.
The only significant difference is that a more left-leaning coalition would likely accelerate an exit from coal-fired generation and expedite a switch to emission-free transport, housing and heating.
In the ratings agency’s assessment, that policy direction could put extra pressure on thermal-generation firms with exposure to coal-fired solutions.
However, infrastructure provides a platform for political unity, with all the main parties favouring improvement and expansion of roads and railways.
With that in mind, significant commercial benefits may stem from a range of investment opportunities, including new public-private partnerships (PPPs), should such efforts be judged cost-effective by the new government.
Road-expansion projects, says Moody’s, would be particularly strong candidates for that PPP support.
Moody’s managing director Colin Ellis says: “Although the German elections could result in a number of different potential coalitions, we don't expect any plausible combination to have a material impact on the credit profiles of the country’s rated debt issuers.”
For German financial institutions, the agency adds, a post-election deterioration in credit quality appears unlikely.
“Any change arising from the election on the banking sector,” it says, “would be confined to Germany’s macroeconomic performance.
“The influence of the election on economic growth would be most relevant because of the German banking system’s domestic focus.”
Meanwhile, in structured finance, “the elections are unlikely to result in any impact on the credit quality of domestic securitisation transactions or covered bonds”.
The election takes place on 24 September.