S&P Global Ratings has confirmed Luxembourg's sovereign credit ratings at 'AAA/A-1+' for both long- and short-term foreign and local currency debt and maintained a stable outlook. The rating action followed an assessment of the country's recent economic performance and fiscal trajectory.
S&P described economic activity as subdued, citing a combination of muted growth in the eurozone, fluctuations in energy prices, and a correction in real estate valuations. The agency noted that Luxembourg's real GDP has remained fragile since emerging from a technical recession in 2023. Looking ahead, S&P expects a modest recovery, forecasting real GDP expansion of 1.0% in 2026. The agency identified robust employment, an economywide indexation scheduled for June 2026, and supportive measures responding to the current Middle East-related energy price shock as factors likely to underpin private consumption.
On the public finance side, S&P highlighted a deterioration in the budgetary path. The government moved from a 0.9% of GDP surplus in 2024 to a deficit of 2.0% of GDP in 2025. S&P projects that budgetary strains will persist, with a forecast deficit of 0.6% of GDP in 2026 and 1.0% of GDP in 2027. The agency attributed the widening deficits to increased defense spending to meet new NATO targets, higher infrastructure investment, and the impact of social security indexation.
S&P estimated Luxembourg's net government asset position at roughly 8% of GDP at the end of 2025, and expects this buffer to decline gradually to about 5% by 2029. The ratings agency also noted that the government raised social security contribution rates to 25.5% from 24.0%, effective January 1, 2026, following consultations with trade unions and other social partners in September 2025.
The stable outlook reflects S&P's view that Luxembourg's sizeable fiscal headroom and very high GDP per capita provide the capacity to absorb persistent stresses without materially undermining the country's net government asset position. However, S&P stated conditions under which it could lower the rating: a materially worse budgetary trajectory that significantly erodes the net asset position, or a diminished capacity to withstand the global push toward a minimum corporate taxation framework.
Contextual implications
While S&P's affirmation signals confidence in Luxembourg's long-term fiscal strength, the assessment underscores ongoing vulnerabilities in economic momentum and the budget. Policymakers face the trade-off of sustaining infrastructure and defense commitments while preserving the government's net asset buffer and the country's high-income profile.