The Dutch economy will come to a virtual halt next year, with GDP growth falling to 0.2% and unemployment rising to 5.3%, the central bank said in its latest half-yearly statement on Friday.
However, if the European debt crisis is tackled quickly and decisively, a ‘restoration in confidence may give the economy a positive boost,’ the central bank said.
The bank says growth will reach 1.4% over 2011 as a whole but the Netherlands has entered into a recession in the second half. The economy contracted in the third quarter and is expected to do so again in the final three months.
Trade and confidence
‘The more sombre growth prospects result from the lower growth in world trade and the increased loss of confidence among enterprises and consumers,’ the bank said. ‘Households tend to save more because their financial situation is deteriorating, notably through declining house prices.’
Central bank president Klaas Knot told Nos television the downturn means the government will need to make further cuts and reforms in order to strengthen the economy. Mounting unemployment, forecast to reach almost 6% in 2013, is ‘worrying’ the central bank president said.
Earlier on Friday, the Telegraaf said the cabinet is preparing to make extra cuts of up to €10bn in order to balance the government’s books. The government’s macro-economic policy bureau is due to publish its latest forecasts on Tuesday.
Housing and benefits
The paper says sources in The Hague say at least €6bn needs to be shaved off spending, but the total could be much higher. The cuts would come on top of the €18bn package already agreed and partly implemented.
Ministers are shocked at the sharp deterioration in the finances, now the economy is slowing down and a recession looms. One source told the paper the figures are ‘very deep red’.
Ministers are considering ‘draconian’ measures involving the labour and housing markets to realise the savings, the paper says.
Over the past few weeks, a number of prominent cabinet supporters have said the generous Dutch system of mortgage tax relief should be reviewed and this is likely to be on the agenda. The cabinet had said it would not interfere with the system, but many pundits regard this as now inevitable.
Major cuts in unemployment benefit are another option, according to media reports.
The anti-Islam PVV, which supports the minority coalition on economic policy, has already said it will not back further cuts unless €4bn is cut from the development aid budget.