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Investing.com -- Luxembourg has maintained its ’AAA/A-1+’ long- and short-term sovereign credit ratings from S&P Global Ratings, with a stable outlook, the agency announced Friday.
The rating agency cited Luxembourg’s ample fiscal space, which allows it to weather economic challenges without undermining its net government asset position. S&P also highlighted the country’s policy flexibility and financial soundness to overcome potential global pressures on its tax system.
Luxembourg’s economy has remained fragile since emerging from a technical recession in 2023. S&P estimates real GDP growth in 2025 at just 1%, down from its previous forecast of 2.4% in January, due to weakening international trade conditions, geopolitical uncertainties, and financial sector volatility.
Despite these challenges, S&P expects growth to pick up in coming years, averaging 2.1% over 2026-2028. This improvement is anticipated due to easing monetary policy and improving growth across the eurozone, along with greater stability in the housing sector.
The rating agency noted that Luxembourg recorded a budget surplus of 1% of GDP last year, exceeding expectations. However, S&P forecasts this will decline to a 0.2% surplus in 2025 and shift to an average deficit of 0.9% of GDP over 2026-2028 as revenue growth slows while expenditure increases remain high.
Key fiscal risks identified include volatile corporate income tax receipts, pension system sustainability, and increased defense spending commitments. Luxembourg has pledged to increase defense spending to 5% of gross national income by 2035, in line with NATO agreements.
Despite these pressures, S&P estimates that Luxembourg’s net government asset position will remain robust at about 10% of GDP by end-2025, though slightly eroding to 6% by 2028.
The agency also highlighted that interest payments remain very low at under 1% of government revenue over 2025-2028, suggesting the projected gross debt burden is highly affordable.
As a global financial hub, Luxembourg continues to show high but falling levels of external indebtedness. The country’s narrow definition of net external debt improved to 139% of current account receipts in 2024, down from 255% in 2019.
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