The Netherlands is facing an ‘extremely serious’ economic situation, prime minister Jan Peter Balkenende said on Tuesday following the latest forecasts from the goverment’s economic policy unit CPB.
The organisation says the Dutch economy is set to shrink 3.5% this year, much more than the 0.75% decline forecast in December.
The downward revision has been made because the international economic crisis has had a much greater impact than expected, the CPB said.
The Netherlands is heading for a severe recession, the prime minister said. The ‘most painful’ aspect of the forecasts is the increase in unemployment, he said.
Unemployment will rise to 5.5% this year and 8.75% in 2010, the CPB says. That means that by 2010, up to 700,000 people could be out of work, some 400,000 more than are jobless at the moment.
But household spending power will rise by an average of 2.25%, partly due to the falling oil price, the CPB said.
CPB director Coen Teulings told a news conference that the government’s budget deficit will rise to 5.5% by 2010. According to the coalition agreement, cuts need to be made if if the deficit goes above 2%. The European Union maximum is 3%.
Teulings said it is ‘unimaginable’ that the shortfall can be absorbed by the cabinet, making spending cuts inevitable.
A number of measures, including raising the pension age, cutting tax breaks for non-working parents and reducing mortgage tax relief are currently under consideration by a committee of senior civil servants.
The CPB figures are still only provisional, the organisation said in a statement. Definitive figures will be published on March 17.
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