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EU Cuts Dutch Economic Forecasts on Depressed Demand

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May 3 (Bloomberg) -- The European Commission lowered its Dutch economic forecasts for this year and next, citing government budget cutting and a property-market slump.

The commission, the European Union’s executive arm in Brussels, sees gross domestic product in the Netherlands, the fifth-largest economy in the euro area, declining 0.8 percent in 2013. That compares with a February forecast for a 0.6 percent contraction.

“Domestic demand is forecast to remain depressed into 2013, as budget consolidation and negative-wealth effects, chiefly emanating from the housing market, continue to pose a drag on the Dutch economy,” the commission said today in its spring economic forecast.

The EU forecast for economic growth next year was lowered to 0.9 percent from 1.1 percent.

The commission predicts the budget deficit to narrow to 3.6 percent of GDP this year and to remain at that level in 2014, according to the report. That’s in excess of the EU ceiling of 3 percent of GDP.

“The Netherlands is forecast to exceed 3 percent of GDP this year related to the nationalization of a bank-insurance company and to a macroeconomic situation that was worse than expected,” EU Economic and Monetary Affairs Commissioner Olli Rehn told a press conference in Brussels.

Austerity Seen

Dutch Prime Minister Mark Rutte agreed on a four-year, 16 billion-euro ($21 billion) austerity package in October and will decide later this year on additional measures of 4.3 billion euros for 2014.

“The Dutch government remains committed to get the budget deficit below 3 percent in 2014,” spokesman Marcel van Beusekom of the Ministry of Finance said in an interview on the phone today. “At the end of the summer, the government will decide if and how much additional austerity is needed,” he said.

The Dutch Central Planning Agency predicted on Feb. 28 the deficit will hit 3.3 percent of GDP in 2013 and 3.4 percent in 2014. The economy will shrink 0.5 percent in 2013, though growth may pick up later this year, resulting in an expansion of 1 percent in 2014, the planning agency said.

To contact the reporter on this story: Corina Ruhe in Amsterdam at cruhe@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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