Economy struggling despite global recovery

4 December 2003

AMSTERDAM — Despite indications of a global economic recovery, the Dutch performance remains dramatically poor as the Central Planning Bureau (CPB) forecast on Thursday negative 0.75 percent Gross Domestic Product (GDP) growth for 2003.

If the Dutch economic performance matches the CPB forecast, it will represent the nation’s third worst economic performance since the end of World War II. Only the years 1958 and 1982 recorded weaker growth rates. The CPB is the official governmental macroeconomic thinktank.

The latest estimate comes after CPB forecasts of budgetary deficit blowouts this year and next sparked government concern on Wednesday. The deficit is now expected to hit 3 percent of GDP this year, despite assurances from Finance Minister Gerrit Zalm of a 2.75 percent deficit.

But the worst is yet to come, with the CPB estimating the deficit will hit 3.25 percent of GDP in 2004, breaching the EU Stability Pact designed to maintain the euro and stave off high interest rates. The pact stipulates budget deficits must not rise above 3 percent.

The Netherlands faces major embarrassment if it breaches the pact. Minister Zalm — who places strong emphasis on reducing the budget deficit — recently lost a battle with Germany and France over their continued breaches of the deficit rules.

Faced with an economy in recession, the Cabinet wielded the budgetary knife in September and slashed EUR 5.7 billion from the 2004 Budget. It also hopes to save a record EUR 17 billion between now and 2007 to reduced the deficit to about half a percent.

But the CPB has forecast that expected budget deficits will rise this year and next due to the longer-than-expected Dutch economic stagnation. This in turn has led to disappointing tax and premiums-based government income and healthcare expenditure budget blowouts.

The CPB also said the Dutch economy was performing particularly poorly and the news comes in stark contrast to a recent Central Bureau of Statistics (CBS) report that revealed the Dutch economy climbed out of its nine-month recession in the third quarter of 2003, recording 0.1 percent GDP growth.

The stronger performance came as positive developments in France and Germany hinted that Europe was edging towards economic recovery, while the US has also shown strong signs of a return to prosperity. Despite the turnaround though, the Dutch economy remained 0.8 percent lower compared with the same nine months of 2002.

Meanwhile, the CPB also forecast on Thursday a continued rise in unemployment, especially in the health and business sectors. The unemployment rate is expected to hit 7 percent of the working population next year, representing 540,000 jobless workers.

Contract wages and inflation are expected to decline even further in 2004. Inflation is forecast to fall under 2 percent next year, compared with a high of 4 percent in 2001.

The CPB expects the present supermarket price war will exert a downward trend on prices.
And the ongoing poor economic performance is also affecting Dutch competitiveness in international markets.

The CPB said price competitiveness of Dutch exporters has “dramatically worsened”, while the willingness of companies to invest also continues to decline.

Subject: Dutch news