The EU’s largest economy is preparing for an economic downturn as credit rating agency Fitch warned the creditworthiness of banks in Germany could soon be downgraded. This would prove a major blow to Germany as lenders could be less likely to provide German banks with funding.
Fitch said “the quality of the assets” is exposed to “downward pressure”.
Analysts wrote: “This is because the sector’s modest pre-crisis profits are a thin first line of defence and the crisis-induced deterioration in asset quality.
“The above-average dependency of German banks on net interest income compared to foreign competitors means that this will further increase the pressure to improve cost efficiency.”
Meanwhile, German Savings Banks Association President Helmut Schleweis said banks were preparing for risks as the coronavirus crisis continues to grip the world.
He said: ”We have to expect that this development will worsen significantly due to the corona pandemic.
“Risk provisioning for possible loan defaults will increase significantly this year and we are also anticipating a difficult year for many savings bank customers in 2021.”
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Germany’s statistics office said the GDP index adjusted for inflation, seasonally and calendar effects plummeted to 94.26 in the April to June period.
The office said: “Most recently, the chain index was lower at 93.19 in the fourth quarter of 2010, so that’s roughly 10 years ago.”
The huge crash in the April to June period was triggered by a massive collapse in exports and measures introduced in a desperate attempt to contain the coronavirus pandemic.
This set alarm bells ringing in Germany as even in the worst three months of the financial crisis in 2009, the country’s economy shrank by less than five percent.
Additional reporting by Monika Pallenberg