Moody's:Austria AAA rating backed by strong economy

Moody's said Friday that Austria's top credit rating is firmly based on its well diversified economy, low unemployment rate and strong financial system but the eurozone debt crisis is a potential risk. Moody's said Austria's Aaa rating "is underpinned by very high economic strength, thanks to a skilled labour force and a competitive export sector that have helped Austria to grow faster than the European average in recent years. "In so doing, Austria has achieved high average incomes, a well-diversified economy and structurally low unemployment," the agency said in a year-end summary of its credit rating opinion on the country. Austria has the lowest unemployment rate in the European Union with 4.1 percent of the active population jobless in October. Moody's also hailed Austria's decision to introduce a "golden rule" law obliging the government to keep the budget balanced, with a deficit limited strictly to no more than 0.35 percent of gross domestic product from 2017. "It is an important characteristic of Aaa-rated sovereigns that they implement speedy and decisive policy action if problems emerge," it said. Austria's deficit is expected to fall to 3.9 percent of Gross Domestic Product this year and to 3.2 percent in 2012 but this should come in under the EU ceiling of 3.0 percent -- a level most EU countries have failed to keep -- after additional measures are taken. Its total accumulated debt is set to inch up from 73.6 percent of GDP this year to 74.6 percent in 2012, above the EU limit of 60 percent but still much better than most of its EU peers. Austria is one of the six eurozone nations -- along with Germany, Finland, France, Luxembourg and the Netherlands -- to retain its top credit rating but the eurozone debt crisis has put the whole bloc under intense pressure. The top three agencies -- Moody's, with Standard and Poor's and Fitch -- have all warned that the crisis has put the EU ratings at risk, with France in particular seen as most likely to lose its prized triple-A level. Moody's said Friday that "the government's financial strength is considered to be very high," with debt interest payments as a ratio of revenues at a very low 6.0 percent. "At the same time, the public debt burden is on an upward trend that is unlikely to be reversed before 2014 under current deficit projections," it noted. Additionally, "susceptibility to event risk is judged as low rather than very low as in many of Austria's closest peers," it said, highlighting the exposure of Austria's "relatively large banking sector" to Eastern Europe. "Moody's notes positively that the authorities are taking steps to limit the sovereign's contingent liabilities that may arise in particular from the banks' large exposure ... However, these developments will take time to bear fruit." On the rating outlook, Moody's said its 'stable' assessment "increasingly becomes dependent on a resolution of the wider euro zone crisis which has begun to negatively affect core euro area member states like Austria. "The longer the sovereign and bank funding markets remain volatile, the more likely it is that further credit pressures will develop for most euro area countries, including Aaa-rated countries"