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S&P Global Ratings Reaffirms Canada’s AAA Credit Rating

S&P Global Ratings has reaffirmed Canada's AAA credit rating despite the rising cost of navigating the economy through the COVID-19 pandemic.

In its latest report, S&P said it expects the Canadian economy will recover next year after an unprecedented amount of fiscal and monetary measures were deployed in response to the COVID-19 pandemic.

Earlier this month, the federal government forecast a deficit of $343.2 billion in the 2020-21 fiscal year, largely because of emergency relief measures extended to consumers and businesses. Ottawa also estimated the national debt will rise to more than $1 trillion.

In June, another rating agency, Fitch Ratings, downgraded Canada to AA+ from AAA due to the country's precarious fiscal situation. S&P, however, said it has more confidence that Canada's deficit won't spiral out of control.

"While fiscal and debt metrics will worsen due to the size of the unprecedented government response, we believe that the government's use of its policy flexibility will likely help the economy and labour market to recover. The largely temporary deviation of the government's fiscal profile does not offset Canada's structural credit strengths, in our view," S&P said in its report.

Despite reaffirming the AAA rating, S&P warned that it could downgrade Canada's credit rating at some point over the next couple of years "should the deterioration in the government's fiscal position become more severe and prolonged than we currently expect."