A major credit ratings agency has confirmed its top-notch score for Luxembourg public debt.

In its annual review, Creditreform Rating maintained the grand duchy’s AAA rating, the agency’s highest, with a “stable” outlook, meaning it does not anticipate downgrading Luxembourg bonds within the next 12 months.

Generally speaking, a higher credit rating lowers borrowing costs on the capital markets.

In its research note, Creditreform Rating pointed out that Luxembourg’s “labour market has proved robust” despite economic headwinds, and stated that “after contracting in 2023, we expect Luxembourg’s real GDP to resume growing in 2024” and pick up speed in 2025. It also cited the government’s “very sound public finances and prudent fiscal planning” and forecast that public debt would remain “relatively low” despite increased state spending.

“Judging by financial soundness metrics, Luxembourg’s banking sector appears robust, with capital buffers remaining significantly higher than the EU on average,” the ratings agency on 19 April 2024. It also stated: “Luxembourg’s large investment fund industry has demonstrated resilience in the face of previously tightening financial conditions.”

However, “there remain risks around developments in the real estate sector against the backdrop of pronounced household indebtedness and ongoing house price correction.” It observed that “house prices have fallen significantly” and that “loan demand is shrinking amid tight financing conditions.”

There are additional risks stemming from “the overhaul of the international corporate taxation regime,” which will have an “uncertain impact on tax revenue and, potentially, the attractiveness of Luxembourg as a business location more generally. Over the medium-to-longer term, rising age-related spending looks set to weigh on public finances if left unaddressed.”

Creditreform Rating has issued AAA scores on the grand duchy’s debt since 2016.

Luxembourg bonds have also been rated AAA by five other major credit rating agencies: DBRS Morningstar, Fitch Ratings, Scope Ratings, Moody's Investors Service and S&P Global Ratings.