On Friday 13 April 2018 the rating agency Fitch announced the maintenance of the highest rating for Luxembourg, AAA, with a stable outlook; this news comes shortly after both DBRS and Standard and Poor’s also confirmed their highest ratings for Luxembourg.
The agency noted that Luxembourg’s rating reflects a high level of per capita income, strong governance indicators, high economic growth potential and sound public finances.
In particular, Fitch noted that Luxembourg has the lowest public debt among AAA countries, with a level of around 23% of GDP. The agency also pointed out that the state budget has recorded a surplus at 1.3% of GDP over the average of the last five years and that social security reserves reached 34% of GDP in 2016.
Fitch forecasts an acceleration of growth to 3.3% in 2018, which would stabilise around 3% in the medium term. A strong labour market and the effects of the 2017 tax cuts, combined with the strength of the economic recovery in the euro area, support these forecasts. The agency also believes that the macroeconomic risks due to the dynamics of the real estate market with high prices and an increase in loans remain limited. A healthy household and banking situation, as well as an increase in fixed-rate loans, as well as government measures to increase supply in the real estate market explain this appreciation.
In terms of risks, Fitch cited the open nature of the Luxembourg economy, which exposes it to the recent protectionist tendencies of some of the major economies, as well as the volatility of the financial sector.
Luxembourg’s Minister of Finance, Pierre Gramegna, commented “I am delighted that a few days before the declaration on the State of the Nation by the Prime Minister in the Chamber of Deputies, the rating agency Fitch joins DBRS and Standard & Poor’s to confirm the AAA of the Luxembourg with stable outlook. In its analysis, the agency highlights the good health of our public finances and confirms the soundness of the government’s fiscal policy over the last five years.”