Country Report Netherlands March 2009

Outlook for 2009-10

• The government is showing competence in addressing the financial crisis, but the two main parties are divided over how much to spend on alleviating the economic slowdown.
• Two right-wing parties, the Freedom Party and Proud of the Netherlands, will continue to put the government on the defensive on immigration.
• A rise in value-added tax, which was to pay for a cut in unemployment benefit contributions in 2009, was postponed, and the Economist Intelligence Unit expects the budget to move strongly into deficit in both 2009 and 2010.
• Consumer and producer confidence are low, and the economic slowdown in 2009 is expected to be severe, with net exports subtracting strongly from growth. Unemployment is set to rise considerably in 2009-10.
• GDP grew by 2% in 2008 and is forecast to contract by 3.2% 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.

Monthly review

• The far-right, anti-immigration Freedom Party (PVV), led by Geert Wilders, has emerged as the most popular Dutch party in opinion polls in early March, demonstrating the fragmentation of voter support in the Netherlands.
• The Davids Commission investigating reasons for Dutch political support for the 2003 Iraq war has been formed of experts, rather than politicians as originally assumed.
• The government is in preliminary talks for the Spring Budget Review. The governing CDA and PvdA disagree over how much is to be spent on a fiscal stimulus package, in view of a deteriorating fiscal situation.
• Separately, the government is also talking with the social partnerstrade unions and employersover wage rises, as it considers the recently struck agreement on a 3.5% increase to be too generous.
• Pensions funds have suffered considerably from asset price falls, which have damaged their coverage ratios. The Dutch central bank is extending the time needed to return to a 105% coverage ratio from three to five years.
• Dutch GDP contracted by 0.7% year on year and 0.9% quarter on quarter in the final quarter of 2008, the third successive quarter-on-quarter contraction.
• Public and private consumption were the only expenditure components to see quarter-on-quarter expansion in the fourth quarter of 2008, whereas investment, exports and imports contracted severely.