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DNB: Budget Deficit to 3.9 Percent of GDP next Year

THE HAGUE, 11/06/13 - The Dutch budget deficit will rise to 3.9 percent of Gross Domestic Product (GDP) next year assuming unchanged policy. To come out below the 3 percent level, supplementary measures of up to 8 billion euros will be necessary, said the central bank (DNB) Monday in its half-yearly economic report.

Last December, the central bank forecast an economic contraction of 0.6 percent for 2013. This has now been revised downwards to minus 0.8 percent. Next year, assuming unchanged policy, modest GDP growth of 0.5 percent is projected. In the year after that, in 2015, it is hoped that that international trade will have picked up to such an extent that the Netherlands can benefit from this with GDP growth of 1.1 percent.

DNB expects the budget deficit to rise from 3.5 percent of GDP in 2013 to 3.9 percent in 2014, without supplementary policy measures. The deficit will rise not only because of the poor economic developments, but also because the government is structurally spending more money than it takes in.

In order to meet the EU deficit ceiling of 3 percent next year after all, the cabinet will have to introduce between 6 and 8 billion euros of extra spending cuts and tax increases. This is more than the 4.3 to 6 billion which the cabinet has to date been assuming.

In 2015, GDP growth will pick up to 1.1 percent, DNB predicts. The central bank is however assuming here that at least part of the premium money freed up by the proposed lowering of tax-free pension build-up will be used to improve purchasing power. Cutbacks on long-term care have also been calculated in. Nonetheless, the budget deficit will also remain above the EU norm of 3 percent in 2015, at 3.4 percent, in case of unchanged policy.

“There is no question for now of a strong cyclical recovery,” DNB writes. This is partly because households, banks, pension funds and the government have to make savings to repair their deteriorated financial balance sheets.

DNB expects unemployment to continue to rise for now. The peak is expected to be reached in mid-2014, when a projected 7.2 percent of the workforce will be jobless. Currently, the figure is 6.5 percent, according to the method of calculation used by the UN labour organisation ILO.
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