Netherlands Seen Failing to Meet Deficit Limit in 2013, 2014

The Dutch budget deficit will breach the European Union limit again this year and next as the economy shrinks and unemployment increases, according to the government’s planning agency.

The deficit will hit 3.3 percent of gross domestic product in 2013 and 3.4 percent in 2014, The Hague-based agency known as CPB said today in a statement. 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.

“Growth can primarily be attributed to stronger export growth”, Nico Klene, senior economist at ABN Amro Bank said in a note today. Private consumption and public spending will increase a little while corporate investments, excluding houses, will increase a bit more, he said.

The Netherlands, the euro region’s fifth-largest economy, has been in breach of the EU rule since 2009. The government is examining 2014 budget cuts of as much as 4 billion euros ($5.2 billion) to lower the deficit to within the EU limit of 3 percent of GDP, RTL television reported on Feb. 26, citing people with knowledge of the matter. The cuts would come on top of a 16 billion-euro austerity package in the next four years.

“Most probably it is not possible to get the budget deficit below 3 percent this year”, Prime Minister Mark Rutte said in a television interview with RTL today. “For 2014 we must get our government finances in order.”

EU Pessimistic

The European Commission was more pessimistic in its forecast for the Netherlands on Feb. 22, predicting a contraction of 0.6 percent this year and a deficit of 3.6 percent.

Halbe Zijlstra, chairman of the governing Liberal VVD party said in an interview with NOS television today that the Cabinet is expected to come up with a package of measures tomorrow.

“We will do all that’s necessary to get our government finances in order,”, Rutte said in an interview on NOS television. “This number shows the Netherlands is going through an extraordinarily difficult phase; this means we will have to continue our reforms.”

The CPB forecasts show unemployment increasing to 6.25 percent this year from 5.3 percent in 2012. Finance Minister Jeroen Dijsselbloem told reporters the numbers were “gloomy.’

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