The main rating agencies have again this year accorded triple A status to Luxembourg and Germany, confirming the soundness and stability of each’s economy.
Bingo! The last of the major agencies to grant “AAA” status to Luxembourg and Germany this year, Standard & Poor’s assessment, published earlier this month, follows the AAA ratings published over the Summer by Moody’s, DBRS and Fitch. Credit ratings are used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of each economy, thus having a big impact on the countries borrowing costs.
These agencies consider that both countries public finances have the enough capacity to absorb the negative impact of the crisis.
According to the rating agencies, the public finances of these countries remain healthy thanks to a proactive budgetary policy of recent years.
What’s more, Luxembourg has demonstrated its efficiency in protecting employees and companies notably via the two economic packages announced by the government in response to the pandemic namely the Covid-19 stabilization program and the “Neistart Lëtzebuerg” which will "ease the contraction in GDP in the short term."
For Germany the top rating “is supported by its large, competitive and diverse economy, its sound public finances and strong and credible fiscal framework, and a robust external position, which provides ample buffers to absorb shocks.” stated DBRS Morningstar.
An “AAA” rating can be a precious marketing tool as it demonstrates a nation’s good financial health and, consequently, gives reassurance to those interested in investing in a country..
The quality as debtor is rated by letter: from A for the best, to D, for those who have defaulted on payment. To establish these ratings, Fitch Ratings, Moody’s, S&P’s and others use various national (central bank, statistical offices...) and international (IMF, OECD...) sources as well as companies’ annual reports.
In 2020, Northern European economies have received excellent scores with the Scandinavian economies also receiving Triple A results. These good ratings should play an important part in showing that these countries possess the necessary means to cope with the financial consequences of coronavirus.