Country Report Netherlands October 2009

Outlook for 2010-11

• An election is due by May 2011, and the Economist Intelligence Unit believes that the government coalition will hold together until then, although the two main coalition parties, CDA and PvdA, will continue to have serious disputes.
• The CDA is still expected to be the largest party at the next election, but the composition of 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 0.4% in 2010 and slightly stronger 1.1% in 2011. After steep drops in 2008-09, exports and investment are not expected to return to 2008 highs by 2011.
• Inflation (national measure) should drop substantially, to 0.7% in 2009 and 0.2% in 2010, as price pressures are weak, before reaching 0.8% 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 4% of GDP in 2009-11.

Monthly review

• The government has presented its 2010 budget proposal to parliament. The budget is fairly unexciting. It postpones deep cuts in order to restore the fiscal accounts, which it foresees as being in deep deficit in 2009 and 2010.
• The government is setting up 20 commissions to look into possibilities for cutting public spending dramatically beyond 2010, by up to 20%, but this is likely to become the task of the next government.
• Mark Rutte, leader of the Liberals (VVD), attacked the government fiercely for delaying the day of fiscal reckoning and a lack of ambition. Three opposition parties supported a vote of no confidence in the government.
• The government's plan to merge two nationalised banks is under threat from its inability to sell one of the bank's subsidiaries, as required by the EU.
• Industrial production was still down by double-digit rates in June, but the pace of decline is moderating. Exports also seem to have reached a (low) trough.
• The unemployment rate rose to 5% in June-August 2009, from 3.8% a year earlier. Employment saw its sixth consecutive month-on-month fall in the same period, and was down by 0.7% year on year.