The global economic slow-down brought by the coronavirus crisis is obviously also affecting Luxembourg, and the government has launched a substantial stabilisation programme for the economy. In spite of the fact that this will increase public debt and that the forecasted GDP growth in 2020 will probably not happen, Moody’s, one of the world’s leading credit rating agencies, reconfirmed the country’s AAA rating on 8 April 2020.
Economic recovery expected to start in autumn 2020
The economic downturn in Luxembourg is expected to be only temporary. Luxembourg magazine Delano quotes Steffen Dyck, lead author of the Moody’s Investors Service report, who says: “Taking into consideration the support measures announced so far, both from the national government and European institutions such as the European Central Bank and the European Commission, we forecast a sharp contraction in Luxembourg’s real GDP by around 4% in 2020. The largest impact will be felt from the second half of March throughout the second quarter, before the economy begins to recover in the third quarter, assuming that the restrictions on public life and economic activity are gradually lifted from early May.” Real GDP growth is expected to rebound relatively strongly and reach approximately 3% in 2021.
Moody’s confidence in Luxembourg’s economy is notably due to the “government’s very sound finances and strong balance sheet”. The government debt of about 18% of GDP in 2019 is one of the lowest proportions among advanced economies. The country also has flush reserves, including those of its social security funds. Nevertheless, Delano quotes, Moody’s predicted government debt would rise by around 6% of GDP.