Research Update:

Long-Term Ratings On The Netherlands Lowered To 'AA+' On Weak Growth Prospects; Outlook Stable
Primary Credit Analyst: Benjamin J Young, London (44) 20-7176-3574; benjamin.young@standardandpoors.com Secondary Contact: Moritz Kraemer, Frankfurt (49) 69-33-999-249; moritz.kraemer@standardandpoors.com Analytical Group Contact: SovereignEurope; SovereignEurope@standardandpoors.com

Table Of Contents
Overview Rating Action Rationale Outlook Key Statistics Related Criteria And Research Ratings List

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Research Update:

Long-Term Ratings On The Netherlands Lowered To 'AA+' On Weak Growth Prospects; Outlook Stable
Overview
In our view, The Netherlands' growth prospects are now weaker than we had previously anticipated, and the real GDP per capita trend growth rate is lower than that of peers at similarly high levels of economic development. We are therefore lowering our long-term sovereign credit ratings on The Netherlands to 'AA+' from 'AAA'. Although The Netherlands' less-promising economic prospects will make it more challenging for the government to achieve its fiscal targets, we believe that the policy consensus in favor of containing public debt and deficits will be maintained. We have therefore assigned a stable outlook to the long-term ratings. This reflects our view of limited additional downside risk to The Netherlands' creditworthiness.

Rating Action
On Nov. 29, 2013, Standard & Poor's Ratings Services lowered its long-term unsolicited sovereign credit ratings on the State of The Netherlands (The Netherlands) to 'AA+' from 'AAA'. At the same time, we affirmed our short-term ratings at 'A-1+'. The outlook is stable.

Rationale
The downgrade reflects our opinion that The Netherlands' growth prospects are now weaker than we had previously anticipated, and the real GDP per capita trend growth rate is persistently lower than that of peers at similarly high levels of economic development (as defined in our sovereign ratings criteria). After contracting by a projected 1.2% in 2013, we expect The Netherlands' real GDP to grow by 0.5% in 2014 and to slowly accelerate to 1.5% by 2016, about half the average annual rate of 2004-2007 and well below the long-term trend (1994-2009: 2.4%). We calculate The Netherlands' real GDP per capita trend growth in 2006-2016 at -0.1%, significantly below our long-term per capita growth expectations of between 0.3% and 1.5% for The Netherlands' peer group, which our ratings methodology defines as sovereigns whose economies produce a per capita GDP in excess of $27,000. The ratings remain supported by our view of high GDP per capita, which we

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Research Update: Long-Term Ratings On The Netherlands Lowered To 'AA+' On Weak Growth Prospects; Outlook Stable

estimate at $46,800 in 2013. A strong external balance sheet (net external assets are estimated at 50% of GDP) supported by constant current account surpluses (estimated at an average of 10% of GDP in 2013-2016) and a competitive workforce also underpin the ratings. We do not anticipate that real economic output will surpass 2008 levels before 2017, and believe that the strong contribution of net exports to growth has not been enough to offset a weak domestic economy. Average real consumption and investment growth have contracted in 2009-2013 (and we expect private consumption to stagnate further in 2014 and 2015), despite the European Central Bank's accommodative monetary policy. Consumer spending has been dampened by high household debt levels and falling house prices. Household indebtedness was 110% of GDP at June 30, 2013 and house prices have fallen by 20% from their peak, and we expect a further small decline in 2014. According to the Dutch National Bank (DNB), 16% of all Dutch households have mortgage debt higher than the value of their property. According to data compiled by the DNB, households held 280% of GDP financial assets at June 30, 2013. However, nearly two-thirds of this is invested in at least partly restricted pension plans. Consumer confidence may also be affected by rising unemployment. The European Commission estimates this will reach 8% in The Netherlands in 2014 (compared to less than 4% in 2009). Generally, reduced government spending has weighed on growth. Although improving, capacity utilization in the manufacturing sector remains under 80% (compared to a long-term average of close to 85%), reducing the likelihood of a meaningful and sustained turnaround in investment until confidence and demand fully return. The adoption of the 2014 budget and an additional 6 billion (1% of forecast 2014 GDP) package of consolidation measures speak to policy consensus, including from the opposition, whose support is needed in the senate. However, future opposition support is not a foregone conclusion. Discussions about further consolidation measures--should they be needed--could become increasingly fraught while weak growth persists. Including the impact of the nationalization of troubled bank SNS REAAL in early 2013, we expect the deficit to be 3.4% of GDP in 2013. We believe the government will reach its 3.0% target by 2015. Fiscal space is increasingly limited, however, with the government's net debt expected to increase to 71% of GDP in 2014. That said, we do not expect the cost of debt service to meaningfully increase. The Netherlands' external accounts continue to support the ratings. We expect current account surpluses to increase to an average of 10% of GDP in 2013-2016, from 8% in 2009-2012. Constant external surpluses have resulted in a net external asset position of 50% of GDP in 2013, which we expect to increase to 70% by 2016. Although The Netherlands' overall international investment position is very strong, portfolio and foreign direct investment are prominent in its external assets while many of its external liabilities are in the form of debt. We expect short-term external debt by residual maturity (much of which pertains to the financial sector) to remain above 170%

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Research Update: Long-Term Ratings On The Netherlands Lowered To 'AA+' On Weak Growth Prospects; Outlook Stable

of current account receipts through 2017.

Outlook
The stable outlook reflects our view that risks stemming from low growth and the related fiscal outturn are balanced against strong export performance, a net creditor position, and high GDP per capita. We expect that The Netherlands' robust national institutions will continue to pursue traditional prudent and consensual economic policy choices and, in doing so, contain increases in public debt and deficits despite low growth. We could raise the ratings if growth prospects materially improve beyond our current expectations and the government's fiscal position rebounds in tandem. However, if economic growth and employment fall significantly below our current forecasts for 2013-2016 (see table), the fiscal trajectory could worsen further. If--contrary to our expectations--net general government debt were to surpass 80% of GDP either because of fiscal slippage, additional financial sector recapitalization, or the base effect of weak GDP performance, the ratings could come under downward pressure.

Key Statistics
Table 1

The State of Netherlands - Selected Indicators

2006 Nominal GDP (US$ bil) GDP per capita (US$) Real GDP growth (%) Real GDP per capita growth (%) Change in general government debt/GDP (%) General government balance/GDP (%) General government debt/GDP (%) Net general government debt/GDP (%) General government interest expenditure/revenues (%) Oth dc claims on resident non-govt. sector/GDP (%) CPI growth (%) Gross external financing needs/CARs +use. res (%) Current account balance/GDP (%) 678 41,526 3.4 3.2 (1.9) 0.5 47.4 46.6 4.8 167.2 1.7 221.7 9.3 2007 784 47,904 3.9 3.8 0.5 0.2 45.3 44.5 4.8 188.1 1.6 240.7 6.7 2008 874 53,297 1.8 1.5 14.9 0.5 58.5 57.6 4.8 193.2 2.2 279.7 4.3 2009 800 48,499 (3.7) (4.1) 0.1 (5.6) 60.8 55.5 4.7 214.2 1.0 312.8 5.2 2010 778 46,933 1.5 1.0 4.0 (5.1) 63.4 59.0 4.3 200.0 0.9 272.9 7.4 2011 834 50,065 0.9 0.5 3.5 (4.5) 65.6 61.0 4.4 199.3 2.5 243.7 9.5 2012 770 46,026 (1.2) (1.7) 4.2 (4.1) 69.7 65.2 3.9 200.3 2.8 263.4 9.4 2013e 786 46,763 (1.2) (1.7) 4.7 (3.4) 73.8 69.4 2.9 198.6 2.6 255.1 10.2 2014f 800 47,390 0.5 0.0 3.2 (3.3) 75.7 71.3 3.5 197.0 1.4 256.1 10.9 2015f 818 48,217 1.3 0.8 2.9 (3.0) 76.9 72.7 4.1 195.6 1.2 251.4 9.9 2016f 838 49,154 1.5 1.0 2.8 (2.8) 77.9 73.7 4.1 194.8 1.2 245.3 9.8

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Research Update: Long-Term Ratings On The Netherlands Lowered To 'AA+' On Weak Growth Prospects; Outlook Stable

Table 1

The State of Netherlands - Selected Indicators (cont.)

Current account balance/CARs (%) Narrow net external debt/CARs (%) Net external liabilities/CARs (%) 10.2 138.6 (14.2) 7.2 147.9 (19.6) 4.8 145.8 (22.5) 6.7 194.5 (38.5) 8.3 173.9 (25.9) 9.9 154.8 (27.3) 9.4 174.2 (42.0) 10.0 168.5 (49.8) 10.4 159.2 (57.9) 9.3 149.8 (64.3) 9.0 139.4 (69.6)

Other depository corporations (dc) are financial corporations (other than the central bank) whose liabilities are included in the national definition of broad money. Gross external financing needs are defined as current account payments plus short-term external debt at the end of the prior year plus nonresident deposits at the end of the prior year plus long-term external debt maturing within the year. Narrow net external debt is defined as the stock of foreign and local currency public- and private- sector borrowings from nonresidents minus official reserves minus public-sector liquid assets held by nonresidents minus financial sector loans to, deposits with, or investments in nonresident entities. A negative number indicates net external lending. CARs--Current account receipts. The data and ratios above result from S&Ps own calculations, drawing on national as well as international sources, reflecting S&Ps independent view on the timeliness, coverage, accuracy, credibility, and usability of available information.

Related Criteria And Research

Related Criteria
Sovereign Government Rating Methodology And Assumptions, June 24, 2013 Methodology For Linking Short-Term And Long-Term Ratings For Corporate, Insurance, And Sovereign Issuers, May 7, 2013 Criteria For Determining Transfer And Convertibility Assessments, May 18, 2009

Related Research
Sovereign Defaults And Rating Transition Data, 2012 Update, March 29, 2013 The Eurozone Crisis Isn't Over Yet, Oct. 1, 2013

In accordance with our relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable (see 'Related Criteria And Research'). At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision. After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts. The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook.

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Ratings List
Downgraded; CreditWatch/Outlook Action; Ratings Affirmed To Netherlands (The) (State of) (Unsolicited Ratings) Sovereign Credit Rating AA+/Stable/A-1+ Senior Unsecured AA+ Ratings Affirmed Netherlands (The) (State of) (Unsolicited Ratings) Transfer & Convertibility Assessment AAA Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. Commercial Paper* A-1+ *Guaranteed by the State of The Netherlands. NB. This list does not include all the ratings affected.

From AAA/Negative/A-1+ AAA

WEBCAST DETAILS Standard & Poor's will host a live webcast discussion on Nov. 29, 2013, at 9.30 am GMT, 10.30 am CET. The webcast is via an online platform only and will require headphones or speakers to access the audio. No telephone lines are available. The webcast will begin promptly at the times indicated. Participants are requested to register 15 minutes in advance for this discussion To register go to http://spratings.com/netherlandswebcast.

This unsolicited rating(s) was initiated by Standard & Poor's. It may be based solely on publicly available information and may or may not involve the participation of the issuer. Standard & Poor's has used information from sources believed to be reliable based on standards established in our Credit Ratings Information and Data Policy but does not guarantee the accuracy, adequacy, or completeness of any information used. Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers:

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