S&P Keeps Negative Outlook on Belgium With Deficit Goal at Risk

Standard & Poor’s maintained its negative outlook on Belgium’s credit rating as a shrinking economy may put the government’s 2013 deficit target at risk.

The negative outlook on Belgium’s AA rating reflects risks to the country’s budgetary and economic performance, S&P said yesterday in a statement. The ratings company projected that the Belgian economy will contract 0.1 percent on a per capita basis this year, putting the government’s goal of a budget deficit of 2.15 percent of gross domestic product at risk.

“Weakening domestic demand, increased unemployment and ongoing budgetary consolidation presents downside risk to our current growth projection,” said Marko Mrsnik, a credit analyst at S&P in Madrid. “Conversely, we could revise the outlook to stable during 2013 if the government continues to comply with its budgetary strategy and if risks related to the economic growth outlook and the materialization of contingent liabilities subside.”

Belgian government guarantees on Dexia SA’s borrowings, equal to more than 11 percent of the country’s gross domestic product, also continue to present a risk, S&P said. Belgium would face a long-term credit rating cut should those contingent liabilities push its net debt to more than 100 percent of GDP from an estimated 94.5 percent this year, according to yesterday’s statement. Still, S&P expects that Belgium’s public debt will peak this year, echoing comments that led Fitch Ratings last week to revise its outlook on Belgium’s rating to stable from negative.

Investors often ignore rating actions, evidenced by the rally in Treasuries after the U.S. lost its top grade at S&P in 2011.

Before it's here, it's on the Bloomberg Terminal.