Shrinking Dutch economy may be unable to sustain AAA credit rating

Lodewijk Asscher

Lodewijk Asscher

The Netherlands saw unemployment reach a 16-year high and a 10 percent decrease in home prices in January, an indication that the country may be unable to maintain its triple-A credit rating.

Unemployment reached 7.5 percent last month year-on-year, an increase from 7.2 percent in January, and consumer confidence dipped to its lowest point since 1986, when records on the indicator began. Housing prices also took the largest annual fall since 1995, Reuters reports.

The shrinking Dutch economy, which is the fifth-largest in Europe and relies heavily on exports, is in its third recession since 2009 and is seeking to reduce its deficit to below the European Union’s target of three percent of economic output in 2013.

Earlier this month, Fitch Ratings downgraded the Netherlands’ economic outlook from stable to negative, citing concerns about the nation’s banking system, high levels of debt and falling home prices.

“The short-term prospects are not rosy,” Dutch Deputy Prime Minister Lodewijk Asscher said, according to Reuters. “It is a bitter pill for people who lose their jobs or have finished their education and can’t find work. There is, however, no simple solution to solve this problem in the short-term. Therefore, we have to continue investing in education, innovation and contain the crisis in Europe.”

While Prime Minister Mark Rutte has promised to reduce the budget deficit to below three percent, official forecasts late last year suggested that reaching that goal would be difficult. Cabinet forecaster CPB expects a deficit of 3.3 percent in 2013, a decrease from 3.8 percent last year, but the central bank has only predicted 3.3 percent in the coming year.

“The thing about the Dutch is that as regards the budget deficit, past experience suggests they will do whatever it takes to meet the rules,” Lyn Graham-Taylor, an economist at Rabobank, said, Reuters reports. “The Dutch consumer has been hit by pension cuts, by the housing market. But it doesn’t immediately increase the chance of a ratings downgrade. This is poor economic data but it would take a while to feed into any ratings actions.”

Consumer spending in the country fell 2.3 percent in the fourth quarter last year from the previous year, reflecting substantial job losses, tax increases, pension cuts and a property market in decline. Bankruptcies in the Netherlands also hit a record-high last year, with an increase from 18 percent in 2011.

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