Moody’s Investors Service says that its ‘AAA’ rating on Canada reflects the country’s large, diversified economy, and sound macroeconomic policy.
In a new credit analysis report, Moody’s says that it expects a benign economic outlook to help the federal government’s fiscal consolidation efforts, allowing it to attain a balanced budget within the next few years. Additionally, it notes that the political consensus for maintaining relatively low government debt levels is also a key credit support.
The rating agency says that the Canadian economy is transitioning towards an external-demand growth model from one primarily driven by domestic demand. And, as this happens, it says, the resource sector will become increasingly important.
“Stronger demand from the U.S. will help the Canadian economy, given the large concentration of exports going to its neighbour as well as the strong financial linkages that exist between the two countries,” it says.
Moreover, Moody’s says that the main risks to the economy — a housing market correction, and high household debt levels — would have a limited impact on the credit quality of the sovereign. “In the unlikely event that there is a severe housing market correction, the exposure of the government would be low,” it says.
“Also, although household debt rose throughout the global financial crisis, levels have begun stabilizing in part because of the authorities’ proactive management,” it adds.