Moody's has raised its outlook for the German bond rating to "stable" from "negative", citing the lowered risk that Berlin would be called on to prop up weak eurozone economies.
Progress toward closing the country's fiscal deficit also contributed to the strengthening of Germany's top-flight AAA rating, Moody's said on Friday.
"Moody's expects balanced fiscal budgets for 2014 and 2015 ... the authorities are unlikely to deviate from the prudent fiscal policy stance announced in the coalition agreement," it said.
The rating firm cited an improving debt-to-GDP ratio, down to 79 per cent from 81 per cent in 2012, and the country's low funding costs as strong positives as well.
Another reason for the improved outlook for Europe's largest economy was that risks that the government would have to do more to support its banks had diminished.
"This change reflects German banks' stronger ability to withstand shocks because of a year of reduced crisis-related losses and improved capital strength," it said.
