The DBRS Morningstar rating agency has confirmed the "AAA" rating of the Grand Duchy of Luxembourg with a "stable" outlook; DBRS Morningstar therefore joins the ranks of other agencies such as Standard & Poor's and Fitch, which have also awarded the Grand Duchy the best rating in their latest assessments.
DBRS Morningstar justified this rating by Luxembourg's substantial capacity to cope with the shock caused by the COVID-19 pandemic and to support the recovery without significant weakening of its public finances. According to the rating agency, this rating reflects the country's fiscal strength and flexibility, which is built on strong institutions, a stable political environment, an advanced and prosperous economy and a strong external position. The outlook is positive, since DBRS Morningstar forecasts a significant rebound in the country's economy in 2021.
The contraction of GDP in Luxembourg in 2020 was limited to -1.3% against -6.54% across the euro zone. Thanks to the resilience of the economy, the acceleration of the vaccination campaign and the significant use of teleworking, economic activity has managed to reach pre-crisis level as early as the fourth quarter of 2020. Forecasts of the European Commission is forecasting growth of 4.8% in 2021 and 3.3% in 2022 for Luxembourg.
A key factor that supported the Luxembourg economy was the fiscal room for manoeuvre created by the prudent fiscal policy of previous years, which enabled the government to take measures of an unprecedented order of magnitude to support the economy and its citizens since the start of the pandemic, mobilising a total of €11 billion in 2020, or 18.6% of GDP, DBRS Morningstar underlined.
On the risk side, DBRS Morningstar does not expect reform of the global corporate tax system to weaken Luxembourg's competitive business model. The rating agency remains convinced that Luxembourg will continue to exercise prudence in budgetary matters and that the country will be able to make the necessary adjustments to absorb any shocks to tax revenues.
Pierre Gramegna, Minister of Finance, commented “This new confirmation of the 'AAA' - with a stable trend - testifies to the merits of the government's prudent fiscal policy as well as the effectiveness of the measures taken during the crisis. Despite the major impact of COVID-19 on public finances, Luxembourg's debt ratio remains one of the lowest in Europe and I am delighted that the country's economy continues to be attractive, both for investors than for employees.”
