Dutch economy coming to a virtual halt

Dutch economy coming to a virtual halt

The Dutch economy will come to a virtual halt next year. GDP growth will fall to 0.2% and unemployment will rise to 5.3% in 2012. However, economic developments depend on the course of the European debt crisis. If the crisis is tackled quickly and decisively, a restoration in confidence may give the economy a positive boost, according to the new half-yearly forecast by DNB published today.

Growth in Dutch GDP (gross domestic product) over 2011-2013 will be much lower than expected a half-year ago. DNB foresees growth of 1.4% in 2011, but in the second half of this year the economy enters a technical recession (two quarters with negative growth). In 2012 growth will dwindle to almost nothing (0.2%). GDP growth may subsequently pick up cautiously to 1.3% in 2013. Unemployment will rise to 5.3% next year and to almost 6% in 2013.

The more sombre growth prospects result from the lower growth in world trade and the increased loss of confidence among enterprises and consumers. Households tend to save more because their financial situation is deteriorating, notably through declining house prices.

The government deficit will first improve from 4.4% of GDP in 2011 to 3.5% of GDP in 2012. However, the downward economic cycle will depress government revenues, contributing to a widening of the deficit in 2013 to 3.7% of GDP. This will bring it above the signal margin that triggers extra austerity measures under the budgetary rules.

The indefinite outcome of the European debt crisis generates extremely large uncertainties. The basic assumption underlying this forecast is that the debt crisis will be resolved in due course without major shocks. A disorderly resolution to the crisis is conceivable, but this is not covered by the usual models and scenario’s that are used in these half-yearly forecasts. Decisions that are crucial for the functioning of EMU will be made shortly. If the debt crisis is tackled quickly and decisively, a restoration in confidence may already give the economy a positive boost next year.

Source: dnb.nl

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