Dutch Central Bank Cuts 2013 Forecast on Bubble Aftermath

The Dutch central bank cut its economic forecast for the country, saying the economy will contract 1 percent this year because of the negative effects of a housing bubble fostered by strong credit growth in the 1990s.

The predicted slump, twice the 0.5 percent contraction the European Central Bank forecasts for the euro area, compares with a December estimate that gross domestic product will shrink 0.6 percent in 2013.

“The continuing increase of house prices was a specific Dutch phenomenon,” the Amsterdam-based central bank wrote in its annual report published today. This was mainly caused by the stimulating effect of a tax deduction on interest rate payments and the looser policy of banks to provide credits, according to the report. In the past five years economic growth cumulatively lagged 4.2 percent behind on Germany, the central bank said.

The Netherlands, the euro-area’s fifth largest economy, fell into a recession in the final quarter of last year, its third since 2009. Dutch consumer confidence dropped in February to the lowest level since records began in 1986 and house prices fell almost 10 percent in January, the biggest decline since the national statistics office started that index in 1995.

The Dutch government planning agency said on Feb. 28 the economy will shrink 0.5 percent in 2013. Growth may pick up later this year, resulting in an expansion of 1 percent in 2014, it said.

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