AMSTERDAM - The Dutch government's financial think-tank has joined the central bank in forecasting a recession in 2013 as a result of waning global trade prospects.
The Central Planning Bureau said Wednesday the Dutch economy would shrink 0.5 per cent, in contrast to its previous forecast of 0.75 per cent growth. Last week the central bank predicted a 0.6 per cent contraction, reversing its previous forecast of a 0.6 per cent expansion.
If the Dutch economy shrinks again in the fourth quarter following the 1.1 per cent quarterly contraction recorded in the third quarter, it will be in recession, officially defined as two straight quarters of negative growth.
Because the recession will likely dent tax revenues and increase welfare payments, both forecasters are predicting that the country's budget deficit will be slightly above the 3 per cent of GDP limit mandated by European rules.
Finance Minister Jeroen Dijsselbloem said Tuesday he was aware of the worsening projections but that he has no plans to alter the budget struck last month.
The new centrist government is bent on austerity via a mix of spending cuts to please Prime Minister Mark Rutte's ruling conservative VVD party, and tax increases for the wealthy, a goal of the other coalition partner, Dijsselbloem's left-leaning Labor Party.
The Dutch economy is regarded as one of the most robust in Europe, with a tradition as a haven for free trade, as well as a centre of engineering expertise. It has a host of international companies and strong transport links such as the Port of Rotterdam and Schiphol Airport in Amsterdam.
However, it has seen its fortunes wane recently as trade was hit by the anemic growth across the 17 EU countries that use the euro and an aggressive government cost-cutting program. Attempts to reform the mortgage system have hit house prices and caused dislocation in the construction sector.
Unemployment, currently at 6.25 per cent, is forecast to peak next year at 7 per cent.
Despite its current problems, the Netherlands continues to have a triple A credit rating from the three main agencies, though Standard & Poor's recently put the country on notice that it may suffer a downgrade.
Dijsselbloem, with less than two months on the job as a top government executive, has become a surprise favourite to replace Jean-Claude Juncker as head of the Eurogroup, the body that encompasses the finance ministers of the 17 euro countries.
On Friday, Dijsselbloem said he would consider taking the position if it were offered him, but he downplayed chances — even as he visited Berlin. Germany has insisted Juncker's replacement must come from a triple A-rated country.