Netherlands Navigating Through Bad Weather

■ The Dutch economy is in deep recession. However, possibilities for fiscal stimulus are limited because of the openness of the economy and European demands for budget consolidation.

■ The government has added a EUR 6 billion savings plan to its budget for 2014. Nevertheless, the budget deficit is likely to exceed to 3% norm in 2014.

■ The economy is expected to grow again modestly in 2014 on the back of a rebound in private investment and strengthening world trade.

On 17 September, Finance minister Jeroen Dijsselbloem (Labour Party, PvdA) presented the 2014 budget. On top of the EUR16 billion savings programme already decided for the period 2013-2017, the government added EUR 6 billion for 2014 to keep the budget consolidation on track. Nevertheless, the authorities estimate that the fiscal deficit will not fall below the 3% norm. The budget is a fine compromise between those that fear that austerity will make the economic situation worse and the European Commission’s exigencies.

A balance sheet recession
The Dutch economy has never recovered from the global recession in 2009. Since 2008, the economy has experienced three recessions. In Q2 2013, activity was 4.3% below the peak reached in Q1 2008. This is much worse than in the neighbouring countries (chart 1). Moreover, unemployment has more than doubled to 6.6% of the labour force since the start of the crisis.

The poor economic performance is closely related to the situation in the housing market.1 House prices have steadily declined since the middle of 2008 and are currently 20% below their peak. In addition, the decline in interest rates has lowered the expected pay-out of long-term savings plans, which household take out to pay off their mortgage after 30 years. Households started to rein in spending to bring their mortgage debt more in line with market values. Consumption has been declining since 2009, except for a small 0.3% rebound in 2010. Nonetheless, their indebtedness has further increased because of the decline in disposable income.

BY Raymond VAN DER PUTTEN

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