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.