Standard & Poor’s (S&P) lowers Netherlands credit outlook to AA+ from AAA due to the country’s weak economic performance that hinges mainly on the government’s austerity measures. This was made worse by falling housing markets and declining consumer confidence. On the other hand, the same financial services company raised Spain’s credit outlook to BBB reporting that the country is gradually improving its economic fundamentals.
With the Netherlands lowered status, the 17-nation euro zone now only has three member-nations remaining with top ratings and these are: Luxembourg, Finland and Germany. Jeroen Dijsselbloem, the Dutch finance minister was naturally disappointed with the credit downgrade. He said that there will definitely be consequences in the country. Right after the announcement, the yields on the 10-year government bonds was pegged at 2.02 percent.
Dijsselbloem also admitted that in order to get back to the top of the ratings, his country needs to address what is wrong in the economy. They also need ti introduce reforms in healthcare and pensions not to mention address the concerns of the labor and housing industries. He added that although the Netherlands is slowly gaining momentum after the recession, it will not resort to major budget cuts to spur economic growth.
As observed by Standard & Poor’s, the current weak economy can also be a result of the government’s austerity measures. That strategy was adopted in the hope of hitting E.U.’s target deficit of just 3 percent of the country’s GDP. Despite major budget cuts amounting to billions of euros, the Netherlands is still expected to surpass the maximum targeted limit for this year.
The budget cuts, as observed by the Dutch central bank and echoing S&P’s line, are the main culprit for the weak economy. There was only 0.1 percent growth in the third quarter of 2013. The result is enough to fuel public indignation and raise an outcry over the way the Dutch government handled the crisis. If all things remain constant S&P forecasts the Dutch economy would shrink by 1.2 percent by the end of 2013, but will pick up momentum on 2016 to grow by 1.5 percent.
However, S&P’s rival financial services companies Fitch and Moody’s retained the Netherlands AAA rating and Dijsselbloem expects that the ratings given will not be lowered soon.
Spain, on the other hand, is on the opposite economic path as traversed by the Netherlands. Due to the positive economic outlook foreseen for Spain, it revised its growth forecast to 0.7 percent from 0.5 percent. S&P thus gave Spain a BBB rating for its long and short-term foreign and local currency sovereign credits. S&P added that the country’s external position is slowly recovering from bleak prospect two years ago because of the financial crisis.
Based on analysis, Spain’s growth can be traced to wage moderation and decisive economic reforms. The other favorable results are the rising activity in the export industry and its net lending position is also expected to show positive growth for the first time in several years.
The other country whose rating improved is Cyprus which got a B rating from a CCC+. The jump was made after three years when the economy of Cyprus came close to financial collapse. Last March, Cyprus took a 10 billion euro bailout plan from the European Union and from the International Monetary Fund (IMF). This just shows that even with Standard & Poor’s lowering the Netherlands credit outlook to AA+, the country is still far better off compared with the rest.
By Roberto I. Belda