Luxembourg-Kirchberg;
Credit: Philippe Schroeder
Luxembourg's Ministry of Finance has reported that the rating agency DBRS Morningstar has confirmed Luxembourg's "AAA" credit rating, with a stable outlook.
Despite the shock caused by the war in Ukraine, the rating agency believed that Luxembourg's growth and public finances remained solid. While real GDP grew further in the first quarter of the year, a contraction of 0.5% was witnessed in the second quarter and the whole year is expected to see some slowdown in growth given the pressure exerted by high energy prices.
Faced with an inflation rate of 8.8% in October 2022 (according to the European price index), DBRS Morningstar expected the negative impact of inflation on consumer and business sentiment to be mitigated from 2023 thanks to the implementation of the support measures decided within the framework of Luxembourg's tripartite commitee.
At the budget level, the rating agency noted that the country had the necessary leeway and that the support measures for households and businesses should weigh on public finances in 2022 and 2023.
DBRS Morningstar also noted that the low level of Luxembourg's public debt was a key element of its assessment for the credit rating. Even if it were to increase slightly in 2022 and 2023, the Grand Duchy's debt ratio remains among the lowest in Europe. In this context, the agency highlighted that the government continues to commit to keeping public debt below 30% of GDP.
Finally, DBRS Morningstar believed that the overall situation of the banking sector remained solid and that a credit rating downgrade was unlikely, provided that the attractiveness of the financial centre is preserved and as long as the volatility of the financial markets does not cause any major shocks. According to the agency, Luxembourg's credit rating is also supported by its high quality of public institutions and its political stability.
Luxembourg's Minister of Finance, Yuriko Backes, commented: "I am particularly delighted with this confirmation of the 'AAA' rating, because it is the first that comes after the tripartite of last September and following the presentation of the 2023 draft budget. This decision bears witness to the merits of the successive packages of measures in favour of households and businesses and it reminds us at the same time that a responsible and far-sighted policy continues to be required in order to preserve favorable prospects for the future".
