Luxembourg's Ministry of Finance has reported that the rating agency DBRS Morningstar has joined the Fitch agency to confirm Luxembourg's "AAA" credit rating, with a stable outlook; the agency noted solid public finances in Luxembourg despite the difficult context, a competitive and prosperous economy and stable political institutions.
After the rebound in growth in 2021, and a resilient dynamic in the first quarter of 2022, the agency notes that the short-term outlook for the Luxembourg economy has weakened with the invasion of Ukraine by Russia and the accompanying energy price inflation. This is reflected in particular by a downward revision of growth forecasts for 2022 to 2.6%, instead of the 3.9% previously forecast. For 2023, the growth forecast is revised downwards from 2.9% to 2.1%. The agency also stresses that a possible prolonged interruption of the Russian gas supply could further increase the risk of deterioration of the economic situation within the European Union and therefore also in Luxembourg.
These latest developments also increase budgetary pressures in the short and medium term. DBRS thus estimates that the “Energiedësch” and “Solidaritéitspak” packages of measures, amounting to 1.1% of GDP, will lead to an increase in the deficit at the general government level to 0.7% of GDP in 2022 and to 0.4 % in 2023.
Despite the macroeconomic context, marked by a slowdown in the international economy and high inflation, the agency remains convinced that the Luxembourg economy has major assets to withstand any new shocks. DBRS also highlights the robust nature of the economic fabric as well as the resilience of the financial center and its international influence with a renowned fund industry and recognized banking and insurance sectors.
A credit report from the rating agency S&P, dedicated to Luxembourg and also published on 29 July 2022, establishes a comparable analysis and comes to similar conclusions as DBRS.
Finance Minister Yuriko Backes commented: “This further confirmation of our AAA rating is reassuring news in the current highly uncertain macroeconomic environment. This rating testifies to the soundness of the government's responsible fiscal policy and the measures taken to strengthen the resilience of our economy. As we face significant challenges in the months to come, I am confident that the draft State Budget for the year 2023 will reflect a fair balance between maintaining a sound budgetary trajectory and targeted measures in for those who need it most.”
