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Announcement:

Moody's issues annual credit report on Luxembourg

Global Credit Research - 30 Apr 2012

London, 30 April 2012 -- In its annual credit report on Luxembourg, Moody's Investors Service says that the country's Aaa government bond rating and stable outlook reflect its very high levels of economic, institutional and financial strength, which contribute to the country's high resistance to event risks. The report outlines the credit factors consistent with the Aaa rating of the Luxembourg government, but also indicates that some of its credit metrics have weakened.

Moody's report is an annual update to the markets and does not constitute a rating action. The rating agency determines a country's sovereign rating by assessing it on the basis of four key factors -- economic strength, institutional strength, government financial strength and susceptibility to event risk -- as well as the interplay between them.

Luxembourg's very high economic strength assessment reflects a solid track record of economic growth (+3.3% on average over the last decade) and the country's position as one of the wealthiest countries in the world, with a GDP per capita (on a purchasing power parity basis) estimated at USD86,124 in 2010. However, medium and long-term growth will be more challenging due to the country's dependence on the financial services industry. Whilst this sector has historically been the country's main engine of growth, Moody's believes that the sector's contribution to future growth could weaken on the back of an evolving tax and regulatory environment that could erode its competitiveness.

Luxembourg ranks very high in terms of institutional strength. The high quality of the country's governance together with the well-defined fiscal framework enhance the attractiveness of the country's economy. Regulatory authorities' prudential supervision and rigorous control of credit institutions and other financial entities or professionals have historically offered reassurance to investors, as did the government's swift and decisive action to limit contagion and preserve stability following problems surrounding Dexia Group.

Moody's assesses Luxembourg's government financial strength as being very high, despite a doubling of its debt/GDP ratio to almost 20% since 2008 on the back of the government's successive banking rescue and economic recovery packages. After a reduction in 2011 (-0.6%), the rating agency expects the government's deficit to widen to 0.9% in 2012, compared with a budget target of 0.7%, before returning to a positive trend. The accumulation of sizable pension fund assets (27% of GDP) also underpins Moody's assessment of government financial strength.

Luxembourg's susceptibility to event risk is very low. Moody's notes that the overall stability of the financial sector, which is mostly comprises investment funds and offshore banks, has been maintained throughout the crisis. Medium-term financial risks could arise from contingent liabilities stemming from the potential need to recapitalise domestically focused banks, whose aggregated balance sheets account for 2.5x-3x GDP. However, given the strength of the government's balance sheet, the rating agency believes that Luxembourg's public finances would be able to withstand isolated bank interventions.

Moody's annual credit report on Luxembourg is now available on www.moodys.com.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Lucie Villa
Analyst
Sovereign Risk Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Bart Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's issues annual credit report on Luxembourg
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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© 2014 Moody's Investors Service, Inc., Moody’s Analytics, Inc. and/or their affiliates and licensors. All rights reserved.
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