Economy to shrink by 3.5%, confirms CPB

The government’s macro-economic forecasting agency CPB on Tuesday confirmed that the Dutch economy is set to shrink by 3.5% this year.

Next year the economy will shrink by 0.25% given the current circumstances, the CPB said.
‘The Netherlands is entering a deep recession,’ the CPB said. This is ‘the result of an explosive combination of macro-economic imbalances and a regulation framework for the financial markets which does not match financial innovations’.
The budget deficit will also reach 5.6% of gross domestic product next year, well above the 3% limit agreed within the European Union. The government coalition agreement calls for budget cuts if the deficit rises above 2%.
Unemployment will rise to an average of 5.5% of the working population this year and 8.75% in 2010.
Wage moderation
Nevertheless, the government should be careful about trying to force through wage moderation as part of its recession-busting package, said CPB director Coen Teulings. Extra pay restraint may not be sensible because of risk of deflation, he was quoted as saying.
Social affairs minister Piet Hein Donner is pressuring unions to agree to a pay freeze to reduce the wage burden on companies.
The CPB expects wage deals agree this year to lead to a 1% increase in pay and that spending power will go up 2.5% this year.

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