Economic Developments and Outlook, June 2012

Press release
Date 11 June 2012

DNB Projections for the Dutch economy: initial contraction followed by slow recovery

The Dutch economy is to contract by 0.6% this year, meaning the double dip has officially arrived.From next year, there will be a slow recovery, with modest initial growth of 0.6%, which in 2014 will climb to 1.2%.Unemployment will rise to 6.4% in 2014.Faster economic growth will demand broad reinforcement of confidence in the Netherlands and Europe alike, which in turn will require convincing forward-looking policy measures.This is the outlook emerging from the latest half-yearly forecast by DNB published today.

Poorer-than-expected economic developments internationally plus the continued slump on the Dutch housing market are pushing economic growth further down this year and the next than had been expected only six months ago.The current outlook assumes that the European sovereign debt crisis – which is the main source of the prevailing mood of uncertainty and low confidence – will resolve itself grandually and without severe shocks.One factor of importance for 2013 is that the projection takes account wherever possible of the Parliamentary budget agreement, which will reduce GDP growth in the Netherlands by 0.5 and 0.3 percentage points, respectively, in 2013 and 2014.Measures announced in the agreement will reduce the EMU deficit to 2.9% of GDP in 2013.However, despite resurging economic growth, the budget deficit will rise again in 2014, to 3.1% of GDP.Clearly, the Government will continue to face tough challenges even beyond 2013 in its efforts to put public finances back in order.

The subdued growth prospects for the Dutch economy are fully attributable to the adverse development of domestic spending by households, businesses and governments alike.The contribution of exports to annual economic growth during the projection horizon will be around 1 percentage point.Thus exports remain an indispensable factor in Dutch economic growth.

Owing to the credit crisis, the balance sheets of the financial sector and government have rapidly deteriorated.This, together with a persistent slump in the housing market, has contributed to a substantial loss of confidence among both consumers and producers.This in turn has imparted a strong downward push to domestic spending, hampering the much-needed balance sheet recovery.It will take several years of higher economic growth to escape from this downward spiral.A growth impulse may come from abroad – in the shape of rebouncing world trade – but a domestic confidence impulse would be at least as welcome.Alternative analyses show that significantly better growth performance of the Dutch economy will require vigorous impulses.As a necessary precondition for such impulses, European policymakers will have to come up shortly with convincing measures to relieve the sovereign debt crisis and to reinforce the institutional pillar of monetary union.For the Netherlands, it is of crucial importance that households as well as businesses should be relieved as soon as possible from uncertainties regarding impending changes in the labour market, the housing market, income policy and the pension system.