Country Report Netherlands April 2009

Outlook for 2009-10

• The government is showing competence in addressing the financial crisis and has reached agreement on a framework package that provides for a spending boost in 2009-10 and fiscal austerity measures when the economy recovers.
• Two right-wing parties, the Freedom Party and Proud of the Netherlands, will continue to put the government on the defensive on immigration.
• The Economist Intelligence Unit expects the budget to move strongly into deficit in both 2009 and 2010, as the economic slowdown brings fiscal stabilisers into play (reduced revenue and higher spending on benefits).
• Consumer and producer confidence are weak, and the economic downturn in 2009-10 is expected to be severe, with net exports subtracting strongly from growth. Unemployment is set to rise considerably in the forecast period.
• GDP grew by 2.1% in 2008 and is forecast to contract by 4% in 2009 and 0.3% in 2010. Export demand and investment will be particularly weak.
• Inflation (national measure) was 2.5% in 2008, but should drop considerably, to 0.4% in 2009 and 1% in 2010, as price pressures fall sharply.
• The euro is expected to be stronger against the US dollar in 2009-10 than in 2008, but to remain volatile. The current-account surplus is forecast to shrink.

Monthly review

• The governing coalition partiesChristian Democratic Appeal, Labour Party and Christian Unionhave reached a major agreement on fiscal stimulus and public finance restoration that lasts beyond the current government term.
• The fiscal stimulus package includes spending to restrain rising unemployment, environmental sustainability measures, infrastructure expenditure and regulatory changes to ease firms' cashflow problems.
• In return, the coalition parties have pledged to work towards cutting the budget deficit when the economy starts recovering. The aim is to improve the budget position by 0.5 percentage point of GDP every year from 2011.
• Longer-term budget improvements will come from raising the state pension age to 67 from 65providing a commission does not suggest alternative ways.
• Employment continued to rise in the Netherlands in the fourth quarter of 2008, albeit slowing compared with earlier quarters.
• Inflation in the Netherlands has remained high compared with the euro area, having been lower in most of 2008, as energy costs adjust more gradually.
• Foreign trade dropped by 14% in volume and 22% in value in January 2009, confirming a plummeting downward trend since November 2009.