Country Report Netherlands November 2009

Outlook for 2010-11

• An election is due by May 2011, and the Economist Intelligence Unit believes the government coalition will hold together until then, despite the likelihood of further disputes between the main coalition parties.
• The Christian Democratic Appeal (CDA) is still expected to be the largest party at the next election, but the next government is subject to uncertainty over the stability and plausibility of possible coalition permutations.
• The government will continue to manage the after-effects of the financial crisis. Public spending will be steered by a coalition agreement on a spending boost in 2009-10 and fiscal austerity measures during the recovery from 2011.
• We expect the budget to be strongly in deficit in 2009-11, as the economic slowdown reduces revenue and increases spending.
• GDP is estimated to contract by a steep 4.1% in 2009, before growing by just 0.5% in 2010 and a slightly stronger 1.3% in 2011. After steep drops in 2008-09, exports and investment are not expected to return to 2008 highs by 2011.
• Inflation (EU harmonised measure) should drop substantially, to 0.9% in 2009 and 0.2% in 2010, as price pressures are weak, before rising back to 0.9% in 2011.
• The euro is expected to be stronger against the US dollar in 2009-11 than in 2008, but to remain volatile. The current-account surplus is forecast to be around 5.5% of GDP in 2009-11.

Monthly review

• The government has reached an agreement on increasing the official retirement age from 65 to 67 in stages from 2020. This follows unsuccessful efforts by the trade unions to find alternatives.
• Two opposition parties, the right-wing PVV and left-wing SP, are opposed to the move, but parliamentary passage seems assured. The proposal will seek exceptions for heavy labourers and those with over 42 years of employment.
• The coalition parties have fallen to their lowest level in the opinion polls since they took office, with the PvdA recording one of its worst results ever.
• The independent commission studying the background to Dutch support for the 2003 Iraq war has delayed the publication of its findings to January 2010.
• The Dutch banking system has seen some upheaval, with the collapse of a small bank, DSB; EU approval for a merger of ABN Amro and Fortis, after divestments are made; and far-reaching structural changes at ING.
• Business and manufacturing sentiment has been improving steadily, but is still negative in most cases. Respondents' outlook for employment is also negative. Consumer sentiment has dipped back down in October, after earlier pickups.

Source: Country Report