Moody’s Investor Service Upholds Canada’s ‘AAA’ Credit Rating

Moody’s Investors Service has reaffirmed Canada’s top 'AAA' credit rating.

The positive news from Moody’s comes ahead of a fiscal update from Prime Minister Justin Trudeau’s government that is widely expected to show soaring debt levels.

Moody’s said that Canada’s economic strength give it a "very high degree of resilience to shocks" as it reaffirmed the country’s 'AAA' rating with a stable outlook. Moody’s said historically low interest rates will help to mitigate the impact of this year’s sharp rise in federal spending to counter the Covid-19 pandemic, which will produce the largest budget deficit since World War II.

Finance Minister Chrystia Freeland is due to release updated government projections in coming weeks. Moody’s expects Canadian Gross Domestic Product (GDP) to contract by 6% this year, followed by growth of 5% and 3.5% in 2021 and 2022.

In July of this year, Fitch Ratings downgraded Canada’s credit rating on concerns about a spike in federal spending during the pandemic.

In its summer fiscal update, the federal government projected a $343-billion budget deficit this year, or 16% of total economic output. Ottawa has since announced an additional $40 billion in spending, and the finance minister has rejected calls for restraint until the pandemic subsides.