S&P Global Ratings has affirmed Canada's AAA credit rating despite the growing cost of shielding the economy from COVID-19, a move that breaks ranks with a rival credit rating agency.

In a report published late Wednesday afternoon, S&P said it expects the Canadian economy will recover next year after a flurry of fiscal and monetary measures were utilized to help absorb the shock from COVID-19.

"We expect that the government will prudently taper its support measures as the economy recovers next year, thereby maintaining its strong financial profile despite a higher burden of net general government debt," S&P said in its report.

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 for consumers and businesses. It also estimated the national debt will hit more than $1 trillion.

Even ahead of that outlook, Fitch Ratings set off alarm bells in June when it downgraded Canada to AA+ from AAA due to the country's weakening fiscal situation.

S&P, however, demonstrated 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," it said in its report Wednesday.

The decision was welcomed by Finance Minister Bill Morneau’s office.

“Going into the global pandemic, Canada entered this crisis on strong footing, with a net debt-to-GDP ratio considerably lower than its G7 peers. Our government  was in a great position to deploy our fiscal firepower to protect Canadians, and we have,” the finance minister’s Press Secretary Maéva Proteau said in an email to BNN Bloomberg.

Canada is by no means out of the woods, however. S&P warned it could downgrade this country'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."

Former Parliamentary Budget Officer Kevin Page said Canada will eventually have to explore the need for austerity to help bring down the deficit, but that’s an issue to focus on in a couple years when the pandemic is hopefully behind us.

“I’m not surprised [by S&P’s decision],” Page told BNN Bloomberg. “It’s good news, it’s a sigh of relief for the finance minister. I think it reflects a slightly different interpretation by this bond rating agency on how to look at the debt numbers in Canada and just how much fiscal room Canada has.”

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