Dutch Central Bank Expects Deficit to Widen to 3.9% in 2014

The Netherlands budget deficit will widen in 2014 as the outlook for the Dutch economy remains weak, the country’s central bank said.

The budget deficit of the fifth-largest economy in the euro area will be at 3.9 percent of gross domestic product in 2014, the Amsterdam-based central bank said in its biannual economic forecasts, published today. In December it forecast a deficit of 3.5 percent. For this year, the central bank still sees a deficit of 3.5 percent.

“The Netherlands may need to cut an additional 6 to 8 billion euro in 2014,” central bank spokesman Tobias Oudejans said in telephone interview today.

The country is in its third recession in four years and has exceeded the EU’s deficit ceiling of 3 percent of GDP since 2009. It is trying to trim its spending gap with a four-year, 16 billion-euro ($21 billion) austerity package agreed on by the coalition government in October. Prime Minister Mark Rutte’s Cabinet will decide later this year on additional austerity measures needed to meet the 3 percent limit in 2014.

“We take notice” of the central bank’s view on additional austerity measures, Coen Gelinck, a spokesman for the Ministry of Finance said by phone. “The Cabinet will decide in August, based on forecasts from the Dutch planning agency.”

‘Tough Times’

The country’s “economy is going through tough times,” the central bank, which is led by Klaas Knot, said in the report. “We don’t see a strong recovery of the economy in the near future as households, banks, pension funds and the government are trying to repair their worsened balance sheets.”

These factors have had an impact on local expenditures and make it hard for the economy to gain traction, according to the central bank. Gross domestic product will fall 0.8 percent this year, instead of a 0.6 percent drop forecast in December, the central bank said.

“After the stabilization of GDP in the course of 2013, we foresee a modest, slowly improving recovery in the course of 2014 and 2015,” the central bank said. “As the world economy picks up, Dutch GDP will grow 0.5 percent in 2014,” it said. That is less than the 1 percent growth it forecast six months ago.

On average unemployment will be at 6.7 percent this year. The central bank expects unemployment to peak at 7.2 percent in mid-2014.

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