Tuesday, 19 August, 2003 Dutch economy out of step
by RN Economics editor Wendy Braanker, 18 August 2003 The Dutch economy has shrunk by nearly a full percentage point in this year's second quarter. The figure is higher than many analysts had expected. They put it down to declines in household consumption. With the economy stuck in the doldrums, consumers are keeping their hands on the purse strings. The Netherlands finds itself quite out of step when it comes to economic developments in Europe. Of course, the current malaise and its impact on world trade also affect other countries. The effects of the pneumonia-type SARS epidemic and the war in Iraq have been felt across the globe in the second quarter of this year. The Netherlands is certainly no exception. What is different is a more than average slump in consumer spending combined with a rigorous retrenchment package put forward by the new centre-right government. "It's what sets the Dutch economy quite apart from other European countries. Here, the government is making great haste trying to put its financial house in order. When it comes to tax revenue, the Finance Ministry has reported one setback after another. All those problems will be dealt with as soon as possible, says Finance Minister Gerrit Zalm. But this means that the government will spend considerably less next year. And that the purchasing power of the average consumer will go down. We're in for tax hikes and lower social benefits, and that explains why the Netherlands is currently lagging behind the rest of Europe. Economy overheated Unlike consumption and foreign trade, government expenditure still made a positive contribution to the Dutch economy in this year's second quarter. But those days seem to be over now that the government has to tackle the increasing number of setbacks. Fortis bank forecasts that the Dutch economy will contract by half of one percent this year, compared to half of one percent average growth throughout Europe. The figures show that the Dutch government's austerity policies are having a negative impact on economic performance. Besides, consumers are unlikely to change their spending pattern as long as the economy falters and unemployment numbers rise. Paying a price for the boom years However, the current contraction is partly caused by past developments: the Netherlands recorded excessive growth figures in the 1990s. Aline Schuiling says the economy simply overheated, with all its consequences. "In the latter half of the 1990s, the Dutch economy grew at a faster than manageable rate. That led to serious bottlenecks on the job market, rising inflation and increased wage demands. As a result of higher wages, the labour market is currently in a pretty poor state in this country, with unemployment going up sharply. Partly, this should be seen as the price we now have to pay for high growth in the second part of the previous decade." In that period, the Dutch economy recorded four or more percent economic growths for several consecutive years, outperforming its partners in the euro zone. Now, the tide has definitely turned. From: http://www.rnw.nl/hotspots/html/dut030818.html
