Rabobank Group

31-3-2009 | Press Releases

The Dutch economy will contract by approximately 4% in volume in 2009 in comparison to 2008. The Netherlands has only posted such a substantial decrease in annual Gross Domestic Product (GDP) on one other occasion in the past hundred years during peacetime, namely in the 1930s. Unemployment in the Netherlands will rise to levels not seen for the past fifteen years, increasing to 6% at the end of this year and nearly 9% at the end of 2010. A gradual recovery of the Dutch economy will not begin until the second half of 2010. These statements were made by the Rabobank economists in the Economic Quarterly Report published today.

Eurozone economy has deteriorated dramatically
Within a matter of only months, the economic outlook for the eurozone has deteriorated dramatically. Governments have intervened in the financial system on a large scale and central banks have cut their policy interest rates to almost zero. These measures have, however, so far failed to produce visibly positive effects on economic growth. The stimulus packages and capital injections are driving up government debt and are consequently leading to a sharp increase in the issue of government bonds. The fact that a relatively large amount of government bonds will be auctioned within a short period of time could exert upward pressure on long-term interest rates. The European Central Bank will further reduce its policy interest rate by 50 basis points to 1%. The Rabobank economists say this does not, however, amount to radical ‘quantitative easing’.

They furthermore state that they have adjusted their real growth forecast for China in 2009 downward to 3.5%. The Rabobank economists nonetheless expect that the Chinese government will publish a percentage of approximately 6.5% in order to prevent social unrest. The Chinese economy is set to face the most considerable slowdown in growth in the past twenty years due to weaker external demand and decreasing investment in the real estate sector. 

Contraction will have a strong negative impact on Dutch government budget
The steep economic downturn in the Netherlands will lead to a rapid decrease in tax revenues and a rise in social benefits, which will in turn drive up the Dutch government deficit substantially. Dutch government deficit would, however, have risen this year even without the crisis. During the highpoint of the economic boom, the Dutch government posted meagre surpluses in 2007 and 2008 of 0.3% and 0.9% of GDP respectively. At the official opening of Dutch parliament in September 2008, the Dutch government said it would finance numerous plans, setbacks and deficits with income from gas, which was estimated very positively due to the high price of oil at that time. 

Now that it appears that the price of oil will turn out to be more than 60% lower, the related income will also be considerably less than originally expected. In addition, a number of cost overruns have remained hidden over the past year due to high inflation. The expenditure parameters consequently rose more rapidly than the costs. Sharply falling inflation will make the cost overruns painfully clear this year. The Rabobank economists say the Dutch government will moreover have its hands full coping with the problems in the financial sector in the months ahead and as a result will have limited scope for further stimulus policy.