Bloomberg News

Netherlands Raises Budget-Deficit Forecast as Growth Slows

September 15, 2011

(Updates with unemployment rise in sixth paragraph.)

Sept. 15 (Bloomberg) -- The Netherlands, the fifth-largest economy in the euro area, forecast its 2012 budget deficit to be higher than previously estimated as economic growth slows.

The shortfall will narrow to 2.9 percent of gross domestic product, instead of the 2.2 percent predicted in June, from an upwardly revised deficit of 4.2 percent this year, according to the 2012 budget plan, which was posted on a government website before its official release tomorrow. The figures were confirmed by the Finance Ministry.

The government planning agency CPB cut its forecast for 2012 economic growth to 1 percent, compared with an earlier estimate of 1.75 percent, and lowered this year’s growth forecast to 1.5 percent from 2 percent.

“State finances still aren’t in order,” according to the budget. “The government, even taking into account 18 billion euros of austerity measures, will still spend more by 2015 than it receives.”

CPB forecast that if the credit crisis worsens, next year’s deficit will remain at 4.2 percent of GDP, breaching the European Union limit of 3 percent for a fourth year. To prevent this, the government needs 5 billion euros ($6.9 billion) of extra austerity measures, according to the agency’s forecast.

Unemployment will hold at 4.25 percent next year, instead of falling to 4 percent as the CPB estimated in June. ABN Amro Group NV, the state-owned lender, that includes Fortis’s former Dutch banking assets, last month said it will cut 2,350 jobs in the next four years.

Purchasing power, or a household’s ability to buy goods, will decline for a third year in 2012, falling on average 1 percent, according to the CPB. While inflation slows to 2 percent from 2.25 percent this year, tax increases will help limit consumer-spending growth to 0.25 percent. The government plans to compensate low-income workers and middle-income households with children.

Government debt will rise next year as a result of the budget deficit and financial aid to Greece, Ireland and Portugal. Debt will total to 65.6 percent of GDP from 64.6 percent this year, CPB forecast, breaching an EU limit of 60 percent for a fourth year.

--Editors: Andrew Atkinson, Eddie Buckle

To contact the reporter on this story: Jurjen van de Pol in Amsterdam at jvandepol@bloomberg.net.

To contact the editor responsible for this story: James Ludden at jludden@bloomberg.net.


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