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More budget cuts on the way as Netherlands sinks into recession

A fresh round of spending cuts in the Netherlands is inevitable after a sharp downgrading of the forecast for the country’s budget deficit in 2012.

The Netherlands Bureau for Economic Planning Analysis (Centraal Planbureau/CPB) now believes the annual deficit will climb to 4.1 per cent of gross domestic product (GDP) next year, far more than the 2.9 per cent allowed for in the government’s October budget plan.

Under the deal that brought the centre-right minority coalition into being, extra budget cuts are required if the actual deficit rises to more than 1 percentage point above the October forecast.

The CPB figures also revealed that the Netherlands is on course for a recession that will last at least a year.

The economy shrank by 0.3 per cent in the third quarter of this year, and the figures show that the downward trend will continue for at least the next nine months. A recession is defined as two quarterly periods of negative growth in a row.

Unemployment is set to rise in the next year from its current level of 4.5 per cent to 5.25 per cent, leaving an extra 90,000 people out of work.

Last Friday it emerged that the cabinet (pictured) was preparing to cut another €5 million in public spending, only for later reports to state that the figure would need to be even higher.

The government is expected to draw up details of the new cuts in February, when the CPB will make its first predictions for the state of the economy in 2013.

The CPB expects the budget deficit for 2011 to reach 4.6 per cent of GDP, which is also higher than the previous forecast of 4.2 per cent.

Such high national deficit figures are awkward for the Dutch government, which has been one of the strongest voices in Europe for tougher penalties against countries that fail to keep their finances on an even keel.

The proposals would see automatic sanctions imposed on a country which overstepped the level of 3 per cent set down in the European growth and stability pact.

Source: De Volkskrant: CPB: Begrotingstekort 2012 schiet naar 4,1 procent

Photo by minister-president (official photo)

Read earlier story: Dutch budget deficit rises by 0.3% as economy slows

See also: Netherlands Bureau for Economic Planning Analysis (in English)