16 September 2013

WSJ: Dutch growth outlook faces further blow from austerity

Public spending cuts and higher taxes imposed to satisfy European demands are likely to weaken further an already-fragile recovery in the Netherlands, as the government struggles to push through reforms needed to salvage the public finances and the country's long-term competitiveness.

The forecast for 2014 economic growth in the Netherlands, the eurozone's fifth-largest economy, was cut by another quarter of a percentage point on Sunday to reflect the €6 billion ($7.98 billion) in austerity measures needed to bring Dutch public finances close to euro-zone targets.

Despite growing resistance at home, the Dutch government, one of the key advocates of fiscal discipline in the European Union, has continuously cut spending and raised taxes to curtail its budget deficit as required by the European Commission. A fragmented political landscape has made it difficult to push through structural reforms of social security and welfare, with the government resorting to more short-term measures to fix public finances.

In 2014 Dutch gross domestic product will grow by 0.5 per cent after a 1.25 per cent contraction in 2013, the CPB said in its latest forecasts on Sunday. The CPB previously expected 0.75 per cent growth in 2014, excluding the €6 billion in austerity measures. The new forecasts were scheduled for release on Tuesday, when the Dutch government officially presents its 2014 budget, but published early after the information was leaked to local media.

The Netherlands, an export-orientated economy, is suffering from sluggish global trade and the economic slowdown in the eurozone. But its economic woes are largely homegrown. Since 2008 house prices have fallen by 20 per cent, resulting in lower household spending to pay down mortgages. Household finances have been further stretched by austerity-driven tax increases, rising unemployment and pension cuts.

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