May 15, 2015 / 8:07 PM / 2 years ago

Fitch Affirms Netherlands at 'AAA'; Outlook Stable

(The following statement was released by the rating agency) LONDON, May 15 (Fitch) Fitch Ratings has affirmed The Netherlands' Long-term foreign and local currency Issuer Default Ratings (IDR) at 'AAA' with Stable Outlooks. The issue ratings on the Netherlands' senior unsecured foreign and local currency bonds have also been affirmed at 'AAA'. The Country Ceiling has been affirmed at 'AAA' and the Short-term foreign currency IDR at 'F1+'. KEY RATING DRIVERS The strengthening recovery is leading to a gradual reduction of macroeconomic and financial risks. Fitch has revised its GDP growth forecast up to 1.7% in 2015 and 2016 from 1.2% and 1.4%, respectively, at the time of the last rating review in January 2015. This is due to the combination of more a benign external environment and a strengthening recovery of domestic demand. Consumption of the highly leveraged household sector stabilised in 2014 after a 3pp cumulative decline during the balance sheet recession in 2012 and 2013. Improving housing and labour market conditions will support consumption and investment growth, underpinning the cyclical recovery of domestic demand. Nevertheless, Fitch forecasts the household savings rate will remain above the pre-crisis level over the medium term, limiting consumption growth. The budget deficit in 2014 was 2.3% of GDP, unchanged compared with 2013 and slightly above the 'AAA' median of 1.4%. The European Commission estimates that the underlying structural deficit declined to 0.2% of GDP in 2014, better than the medium-term objective of a 0.5% deficit. The fiscal consolidation measures in 2012 and 2013 have permanently improved the structural position, although the headline deficit remained larger due to the recession. The successful fiscal consolidation in 2012 and 2013 during the balance sheet recession of the private sector, highlights the resilience of the very open Dutch economy to adverse shocks. Gross general government debt (GGGD) reached 68.8% in 2014, significantly above the 'AAA' median of 44%. Based on its debt dynamics simulation, Fitch forecasts GGGD to peak at 69% of GDP in 2015 and gradually decline to 60% by 2024. The risks to the sovereign from financial sector contingent liabilities are limited. The banking sector benefits from the recent stabilisation of the housing and labour markets, strengthening recovery and monetary policy easing by the ECB. However the ultra-loose monetary conditions could lead to adverse side effects in the Netherlands. The current very low yield environment would have a relatively large impact on the Dutch economy, especially if it persists for a longer period, as gross household financial wealth, including non-bank pension and life insurance assets, are close to 3x the GDP. The flexible, diversified, high value-added and competitive economy benefits from strong domestic institutions, a track record of sound budgetary management and historically broad public and political consensus in support of fiscal discipline. The country has run consistent current account surpluses of 7%-10% of GDP since 2010 and has a positive net international investment position. Fitch considers financing risk as very low, reflecting an average debt maturity of around seven years, average issuing yield close to 0% in 1Q15 and strong financing flexibility underpinned by The Netherlands' status as a core eurozone sovereign issuer, with deep capital markets and large domestic savings. RATING SENSITIVITIES The Outlook is Stable. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a high likelihood of leading to a rating change. However, future developments that could, individually or collectively, result in negative rating action include: - Fiscal easing or growth underperformance, leading to the public debt ratio peaking higher and later. - Crystallisation of contingent liabilities arising from a range of potential sources, including the banking sector, the Nationale Hypotheek Garantie mortgage guarantee scheme or eurozone bail-out packages. KEY ASSUMPTIONS The debt sustainability calculations are based on the assumption of a 1.5% medium-term growth rate, GDP deflator converging gradually to 2% and a balanced primary budget position from 2017 onwards. No additional sovereign support to the banking sector is assumed. The European Central Bank's asset purchase programme should help underpin inflation expectations, and supports our base case that in the context of a modest economic recovery, the eurozone will avoid prolonged deflation. Fitch also assumes gradual progress in deepening financial integration at the eurozone level and that eurozone governments will tighten fiscal policy over the medium term. Fitch's base case is that Greece (CCC) will remain a member of the eurozone, although it recognises that 'Grexit' is a material risk. Although a Greek exit would represent a significant shock to the eurozone that could spark a bout of financial market volatility and dent confidence, Fitch does not believe it would precipitate a systemic crisis like that seen in 2012, or another country's rapid exit (see 'Grexit Still Possible; Systemic Crisis Unlikely' dated 6 March 2015 at www.fitchratings.com). Contact: Primary Analyst Gergely Kiss Director +44 20 3530 1425 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Alex Muscatelli Director +44 20 3530 1695 Committee Chairperson Paul Gamble Senior Director +44 20 3530 1623 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Sovereign Rating Criteria' dated 12 August 2014 and 'Country Ceilings' dated 28 August 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Sovereign Rating Criteria here Country Ceilings here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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