The Dutch Economy in 2013

Outlooks, Problems and Solutions

Peter Machielse 19th December 2012

List of abbreviations

CPB DNB CEP MEV EC IMF OECD EMU BTW

Centraal Plan Bureau (Dutch Bureau for Economic Policy Analysis) De Nederlandsche Bank (Dutch Central Bank) Centraal Economisch Plan (spring edition of the CPBs economic outlook) Macro Economische Verkenning (autumn edition of the CPBs economic outlook) European Commission International Monetary Fund Organization for Economic Co-operation and Development European Monetary Union Belasting Toegevoegde Waarde (Dutch equivalent of Value Added Tax)

Expectations for the Dutch economy in 2013 Different Dutch and foreign institutes publish their expectations for the Dutch economy. The most authoritative institute in the Netherlands is the CPB (Centraal Plan Bureau). This institute has a long tradition in predicting economical outlooks and it is the main source where the Dutch government relies on while making their budgetary plans. Another major role is assigned to the DNB (De Nederlandsche Bank) which also publishes an economical forecast. These two outlooks can be considered as the most leading in the Dutch policy making process and are regarded as commonly understood facts (den Butter, 2006). The latter predicts an economic downturn of -0,6 % for the year of 2013.1 The CPB publishes an economic outlook four times a year. The spring prediction which is abbreviated as CEP (Centraal Economisch Plan) and the autumn prediction which is abbreviated as MEV (Macro Economische Verkenning) are the most important CPB economic outlook publications each year. After these publications an update of both predictions is published each year in June and December.2 The MEV for 20133 calculates an economical growth of 0,75 % for the year of 2013. This was rectified to -0,5% in the December 2012 outlooks. 4 The CPB and the DNB are the most authoritative sources on economical outlooks in the Netherlands, however they are not the only institutes doing so. Dutch banks also publish their predictions which over 2012 seemed to be more accurate than the ones mentioned above.5 Three of the four biggest banks6 in the Netherlands predict the GDP (Gross Domestic Product) development for 2013 as followed: ING -0,5%7, ABN AMRO 0,5%8 Rabobank 0,25%9 All the above organizations and institutions are from Dutch origin. When looking at the predictions concerning the economic outlooks in the past, the domestic sources seemed to be the most accurate.10 Among the international organizations, the EC (European Commission) can be regarded as the most influential institute on the Dutch policy making process. The EC publishes outlooks for the Dutch economy twice a year (as they do for all EMU member states) and predicts the growth for 2013 at 0,3%11. The IMF (International Monetary Fund) predicts 0,4 %12 and the OECD (Organization for Economic Co-operation and Development) predicts 0,2%.13 Current problems in the Dutch economy Probably the most discussed problem within the Dutch economy and the cause of the current cuts is the large public debt that was caused by financial crisis of 2008-2009 and the European sovereign-debt crisis within the EMU (European Monetary Union) which started in 2010. In fact one can argue that the Dutch economy is even more vulnerable to global economic (and especially European) problems due to the open character of the Dutch economy. The Dutch rely heavily on their exports to realize an increase in GDP. Netherlands is almost like no other country dependent on the export to other Euro zone countries (60%).
1 2

De Nederlandsche Bank. Economische Ontwikkelingen en Vooruitzichten. December 2012 Nr. 4. http://www.cpb.nl/kortetermijnramingen 3 Macro Economische Verkenning 2013 Sdu uitgevers september 2012. 4 Centraal Planbureau: Decemberraming 2012. Economische vooruitzichten 2013. December 2012 5 http://www.cpb.nl/artikel/veelgestelde-vragen-programma-macro#vraag_2.3 6 http://www.nrc.nl/nieuws/2012/10/03/vier-grootste-nederlandse-banken-doorstaan-europese-stresstest/ 7 ING maandbericht economie november 2012 8 ABN AMRO Economische ramingen Economisch Bureau Macro Research. 21 August 2012 9 Rabobank Outlook 2013. Low growth is the new reality. November 2013. 10 http://www.cpb.nl/artikel/veelgestelde-vragen-programma-macro#vraag_2.3 11 European Economic Forecast. autumn 2012 12 IMF World Economic Outlook: Coping with High Debt and Sluggish Growth. October 2012. 13 th OECD Economic outlook no. 92 27 November 2012.

A lingering crisis in the Euro zone therefore limits the capabilities for the Dutch to increase their GDP in the short term.14 The deficit for 2011 came to 4,5% of the GDP and despite the measures taken by the government (whom tries to follow the European budgetary 3 % rule to avoid an European Commission penalty) to reduce the deficit, it turns out to be -3,8% of the GDP for 2012 and -3,3% of the GDP for 2013.15 The government had to do something about their public debt because the current interest is about 10 billion each year with the current debt of 447 Billion which is 71,9% of the countrys GDP.16 However the measures taken by the government (16 billon of cuts17) to keep the public debt manageable are not without consequences for the economical growth. Partly due to the cuts in governmental spending the level of consumption is decreasing which causes a decrease or a negligible growth of the Dutch GDP during 2012-2013 (see outlooks above). Therefore the main concern is to find a balance between cutting governmental expenses and spare economical growth. When governmental expenses are cut too much, the economical growth is at stake. To get more into detail, below a short description of the major problems occurred due to the stagnating economy and the related decline in private spending is pointed out. One of the most important reasons for a decline in private spending is the downturn trend of the housing market. The average value of a house will fall by 21%18-2519, over the period from 2008-2014, which leave people with a negative home equity20. The outlooks for the unemployment rates have their resonance on public spending as well. Not only more people are getting unemployed21 (what also causes more governmental expenses on the welfare system), also people who are still working will be triggered to save their money instead of spending it. Furthermore the pensions are under pressure to fulfill their coverage due to the economic downturn and the growing amount of the elderly. Therefore payments go down and contributions go up, so both the working and retired lose some of their purchasing power. Also the increasing healthcare22 costs make the policy makers concerned, because the expenses of 13% of the GDP in 2010 will increase to 22% in 2040.23 Those negative economical outlooks turn the consumer confidence into historically low levels comparable to the early 80s and the burst of the Internet bubble in 2003.24 While the bad housing market, unemployment rates, pensions, increasing healthcare costs, and the consumer confidence are the main points of concern, other measures and issues can damage the public spending as well. To mention a few: increasing BTW (Value Added Tax), increasing insurance tax, wage moderation in the public sector, 25 26 a loss of income by the government due to the growing unemployment27 and a growing amount of elderly compared to the working force.28

14 15

De Nederlandsche Bank: Economische Ontwikkelingen en Vooruitzichten. December 2012, No: 4 Centraal Planbureau: Decemberraming 2012. Economische vooruitzichten 2013. December 2012 16 http://www.rijksoverheid.nl/nieuws/2012/09/18/miljoenennota-2013-schokbestendige-overheidsfinancien-en-eenveerkrachtige-economie.html 17 Actualisatie Analyse economische effecten financieel kader regeerakkoord. 18 De Nederlandsche Bank: Economische Ontwikkelingen en Vooruitzichten. December 2012, No: 4 19 NRC Handelsblad, Tuesday 18th December 2012, P1. 20 European Commision: European Economic Forecast. Autumn 2012. 21 http://www.volkskrant.nl/vk/nl/3184/opinie/article/detail/3364169/2012/12/15/Waar-blijft-masterplan-tegen-dewerkloosheid.dhtml 22 Actualisatie Nederlandse economie tot en met 2017 (verwerking Regeerakkoord) 23 Centraal Planbureau: Trends in Gezondheid en Zorg. June 2011 24 De Nederlandsche Bank: Economische Ontwikkelingen en Vooruitzichten. December 2012, No: 4 25 De Nederlandsche Bank: Economische Ontwikkelingen en Vooruitzichten. December 2012, No: 4 26 European Commision: European Economic Forecast. Autumn 2012. 27 Centraal Planbureau: Decemberraming 2012. Economische vooruitzichten 2013. December 2012 28 Centraal Planbureau: Trends in Gezondheid en Zorg. June 2011

What the government should do A further integration within the EMU is not the right solution to solve the European sovereign debt crisis in the long run. Despite the successes of the European internal market during the last 20 years, a further European Integration does not seems to help the Euro zone into a brighter future. With a further integration (e.g. a collectivization of the countries public debts), the sting of the market would be taken away from the weaker European countries needed to get their national finances in line, because the stronger countries will pay the bill. However a collapse of the Euro zone can be catastrophic for the Dutch economy so measures to save it should be taken, but the Dutch government should try anything possible to put the weaker states back on track. The government should be reluctant to invest in the economy. Even though investments can solve the pain on the short term, the risk will occur that the governmental finances become unmanageable due to the rising interest. Therefore I would suggest adhering as long as possible to the European requirement that the deficit should not transcend the 3% of the GDP. Once leaving the 3% rule, leaving the newly set target as well would be a next step into an unmanageable financial situation. However when the economy is supposed to damaged irreparable, the 3% should be ignored for a short period. Furthermore I would suggest being reticent on raising the costs for the private companies. Those companies are the real pillar where the economy depends on and the way to increase the countrys GDP in the near future. An increase in wages due to an increase in welfare costs will result in a private sector which is less capable to transfer creativity and ideas into employment and welfare. The labor market therefore should be made more flexible. With a global market that will be more and more dynamic during the next decades, companies should be more flexible to anticipate rapidly on the fast changes of the future. The Dutch tell themselves to be a nation of export. This is true when looking at Europe, but there is a lot to win when we consider the activity on the global market. With the bad economical outlooks for the U.S. and Europe, the Dutch government should invest in trading and strengthen the ties with upcoming markets in especially Asia and Latin America.

Bibliography ABN AMRO: Economische ramingen, Economische Bureau Macro Research. 13th September 2012. Butter, F. A. G. den (2006). The Industrial Organization of Economic Policy Preparation in the Netherlands. Version 23th January 2006. (http://staff.feweb.vu.nl/fbutter/berlijnpap.pdf) Centraal Planbureau: Actualisatie Nederlandse Economie tot en met 2017 (verwerking regeerakkoord). 29th November 2012. Centraal Planbureau: Actualisatie Analyse Economische Effecten Financieel Kader Regeerakkoord. 12th November 2012. Centraal Planbureau: Decemberraming 2012. Economische vooruitzichten 2013. December 2012 Centraal Planbureau: Herstelgroei na 2012 Centraal Economisch Plan 2012 March 2012. Centraal Planbureau: Juniraming 2012. De Nederlandse Economie tot en met 2017, inclusief Begrotingsakkoord 2013. CPB Policy brief. June 2012. Centraal Planbureau: Macro Economische Verkenning 2013. September 2012. Centraal Planbureau: Trends in Gezondheid en Zorg. June 2011 De Nederlandsche Bank: Economische Ontwikkelingen en Vooruitzichten. December 2012, No 4. De Nederlandsche Bank: Economische Ontwikkelingen en Vooruitzichten. June 2012. No 3. De Nederlandsche Bank: Overzicht Financile Stabiliteit. Voorjaar 2012, No 15. European Commission: European Economic Forecast. Autumn 2012. European Commission: European Economic Forecast. Spring 2012. European Central Bank: Monthly Bulletin. December 2012. ING: Maandbericht Economie. November 2012. International Monetary Fund: World Economic Outlook October 2012. Coping with High Debt and Sluggish Growth. NRC Handelsblad: Tuesday 18th December 2012. P1. OECD: Economic Outlook No 92. 27th November 2012. Rabobank: Economic Update The Netherlands. Rabobank Economic Research Department. 4th December 2012. Rabobank: Economisch Kwartaalbericht 2012. Rijksoverheid: Miljoenennota 2013. 18th September 2012. Rabobank: Outlook 2013. Lower Growth is the New Reality. November 2012.

Websites ec.europa.eu www.abnamro.nl www.cbs.nl www.cpb.nl www.dnb.nl www.ecb.int www.imf.org www.ing.nl www.oecd.org www.nrc.nl www.rabobank.nl www.rijksoverheid.nl www.volkskrant.nl European Commission ABN AMRO Bank Centraal Bureau voor de Statistiek Centraal Planbureau De Nederlandsche Bank European Central Bank International Monetary Fund ING Organisation for Economic Co-operation and Development NRC Handelsbald Rabobank Dutch central government Volkskrant