Dutch growth forecast for 2005 cut to 1pc

10 December 2004

AMSTERDAM — Despite a promising recovery at the start of the year, Dutch economic growth is expected to grow by just 1 percent in 2005 instead of a previously forecast 1.5 percent, the Central Planning Bureau (CPB) has warned.

The CPB attributed the reduced forecast to a slowdown in the global economic cycle, the continued strength of the euro and higher oil prices. Economic growth for 2004 is estimated at 1.5 percent.

The Dutch government’s macro-economic thinktank issued a report in September in which it forecast economic growth of 1.5 percent for next year, an increase of 0.25 percent on its April forecast. But in reducing its forecast on Thursday, the CPB said the recent economic recovery had already stumbled

Despite the fact that Dutch unemployment is growing less quickly, the jobless rate is still expected to hit 6.75 percent of the workforce next year. This amounts to 525,000 unemployed workers, compared to 495,000 in 2004. The CPB had previously forecast 7 percent unemployment next year.

The CPB also warned in a press release that diminishing real wages and higher taxes and insurance premiums will put pressure on real disposable household income. Inflation is expected to remain low in 2005 and equal the 2004 figure of 1.25 percent.

The bureau said the “social agreement” signed between the Cabinet, employers and unions to end industrial unrest last month has called for an “utmost reserved” wage development next year.

The Social Affairs Ministry earlier warned this week that purchasing power will fall 0.25 percent more than expected for most income groups. The CPB recently forecast a 2 percent fall in purchasing power, double the government’s initial forecast.

Having breached the euro-zone’s Growth and Stability Pact in 2003, the Dutch budget deficit is expected to rise no further than 3 percent of Gross Domestic Product (GDP) this year. The pact sets a maximum allowed deficit of 3 percent to maintain the stability of the euro.

Despite a record amount of budget cuts and tax increases, the 2004 Dutch budget deficit is still in the danger area. Economising measures will probably reduce next year’s deficit to 2.25 percent of GDP.

Export growth strengthened in 2004, but is expected to rise less dramatically in 2005 due to the global economic slowdown and a further worsening of the Netherlands’ price competitive position.

Due to the recovery of production growth, non-residential investment will probably increase this year, having witnessed three years of consecutive falls. Investment is also expected to rise, but moderately, in 2005.

Meanwhile, economic growth across the eurozone in 2004 is estimated at just 2 percent, somewhat better than the 0.5 percent growth in 2003, but still quite low for a recovery. Economic growth is expected to remain weak in the short-term.

Economic growth outside the euro area will probably end up at around 5 percent in 2004. This is 0.5 percent more than in 2003 and the strongest growth figure in the past 25 years. US and global economic growth is expected to slow next year.

Subject: Dutch news