The Netherlands became the latest country to be stripped of its coveted triple-A credit rating Friday, after Standard & Poors downgraded the country to AA+, citing weakening growth prospects. Enlarge Image cat The Dutch flag was waved during a sunset from the Table Mountain overhanging the city of Cape Town. Agence France-Presse/Getty Images S&P is the first rating firm to downgrade the Netherlands, saying the countrys growth prospects are weaker than we had previously anticipated and that the real [gross domestic product] per capita trend growth rate is persistently lower than that of peers. However, it wasnt all bad news for the euro zone Friday, as the New York-based ratings firm lifted the outlook on Spain to stable and upgraded Cyprus to B- from CCC+. S&P kept Spains long-term credit rating at BBB-, just a notch above junk bond status. The downgrade is a blow to the Netherlands, one of the core members of the euro zone and a staunch supporter of budgetary discipline. Even as the country is crawling out of a yearlong recession, its economic performance is lagging other core European economies like Germany. Grading Global Debt Click to view interactive. View Graphics Dutch Finance Minister Jeroen Dijsselbloem said the downgrade was disappointing. I take these ratings seriously, because the markets take them seriously, he said in a television interview. Analysts said the downgrade will have little impact on the countrys borrowing costs. The Netherlands still boasts a top credit rating from the other two main rating firms and the government continues to have a good track record in terms of fiscal policy, BNP Paribas BNP.FR +0.09% said. From a market perspective, investors often ignore these ratings. Dutch 10-year yields were broadly unchanged Friday. The key benchmark on the Amsterdam Stock Exchange AEX was up 0.1%. Related Article S&P Raises Outlook on Spain to Stable Heard on the Street: Celebrating Euro-Zone Differences The downgrade nevertheless underscores the weak state of the Dutch economy, which according to estimates from the European Commission will grow by only 0.2% in 2014. The Netherlands will be the weakest performer in the currency bloc after the troubled economies of Cyprus and Slovenia, according to the Commission. While the export-oriented country is considered one of the most competitive economies in Europe—with a current-account surplus even larger than Germanys—it struggles with severe problems at home. While Dutch exports continue to grow, the key factor in the weak performance of the economy is the fall in household consumption due to the countrys mortgage debt pile. Dutch households are among the most indebted in Europe and are suffering from a slump in the housing market. House prices have fallen by more than 20% since their 2008 peak, leaving around one in four Dutch households underwater, causing private consumption to plummet. Government austerity measures, mostly comprising of tax increases, are further dragging on domestic demand. While the economy returned to growth in the third quarter, the recovery is expected to remain subdued in 2014 and beyond, S&P said. We do not anticipate that real economic output will surpass 2008 levels before 2017, S&P said. The strong contribution of net exports to growth has not been enough to offset a weak domestic economy. Mr. Dijsselbloem said the downgrade was an encouragement to press ahead with economic overhauls. He said the housing market is showing signs of stabilization and that households have been able to pay off some of their mortgage debt in the past years. The Dutch government is dealing with a number of structural issues in the economy, such as the labor market, the housing market, and pensions. These are the main factors that are holding back our economy, he said in a television interview. Were going to push forward with these reforms and make sure our economic recovery picks up in strength.
Posted on: Fri, 29 Nov 2013 18:12:59 +0000
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