Purchasing power to fall, jobless to rise

11 June 2004

AMSTERDAM — Purchasing power in the Netherlands will contract even further next year and unemployment will rise stronger than expected as the Dutch economic recovery fails to gather strength, the Central Planning Bureau (CPB) has reportedly forecast.

Sources claim the CPB has reduced its estimate for economic growth this year and in 2005 to 1.25 percent, compared with its previous forecast of a 1.5 percent rise in Gross Domestic Product (GDP).

The reduced growth forecasts raise the spectre that Finance Minister Gerrit Zalm will be forced to cut back even further on the Dutch government budget, newspaper De Volkskrant reported on Friday.

The CPB — the government’s economic advice institute — estimates that the budget deficit will hit 3 percent of GDP this year, but the Stability Pact underpinning the strength of the euro requires European Union member states to maintain budget deficits under 3 percent.

The Netherlands has been highly critical of both Germany and France for running budget deficits breaching the pact. But the Dutch were left red-faced when the government budget breached the regulations last year, prompting extra savings from Minister Zalm.

But the VVD minister might be forced to toughen the government’s austerity measures again. The extra hundreds of millions of euros the government earned through the sale of natural gas due the high price of oil are being wiped away by lower income tax revenue due to continued poor economic growth figures.

The stagnant economic growth is also leading to higher jobless figures, with the number of unemployed workers expected to hit 520,000 this year, 5,000 more than previously forecast. An estimated 565,000 are expected to be out of work next year.

All Dutch residents are faced with a fall in purchasing power. Employed workers face a decline of 1 percent, anyone on the AOW old-age pension is expected to lose 1.5 percent and those on social security face a 2 percent reduction.

But the CPB is forecasting that the budget deficit will hit 2.7 percent in 2005, ruling out the need for further economising next year.

Subject: Dutch news