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Tuesday, 13 December 2011

It´s now official: according to the Dutch Central Planning Bureau, the Dutch economy is in a recession

The Central Planning Bureau (CPB), the Dutch semi-government bureau, has as its main tasks: making forecasts on the Dutch economy and calculating/budgeting the impact of new laws and policies and pre-election scenarios from political parties.

Today the CPB published its prognosis for 2012 and stated on top of that, that the Dutch economy is now officially in a recession. This is something that can hardly be a surprise for my regular readers. Read for instance the following article: Is the world heading into a recession?. Here are a few pertinent snips:

At this moment Europe and the United States seem to head into a recession. The continuing attacks of the financial markets on the sovereign bonds of the PIIGS-countries in the Euro-zone and the bleeding heart-solution for the debt ceiling, disclosed the weakness, dividedness, shameless self-promotion and even egoism of our current leaders: in the US, as well as in Europe. The leaders rather ‘kill’ the economy in their country than giving in to their opponents: the other party (US) or the other countries (EU). In the meantime everybody tries to play the blame-game.

But think of it: if the aforementioned events would not have happened and if the Republicans and Democrats would have been sworn friends, would we not have been in a recession? And if Greece, Italy, Spain, Ireland and Portugal would have been ‘role model countries’ without serious debt issues, would the situation have been much better?
Probably yes, as there would have been much less debt to recover from.

But I doubt if there would not have been a credit crisis: such a crisis is a cleansing process, where people say goodbye to extravagant behavior and excess spending and return to normal, more austere behavior.

Therefore one of the most reliable signals on the state of the economy is formed by the mood of people. The recession is not only in the wallets of people; it is also in the heads and hearts of people. That is one of the valuable lessons I learned from Minyanville (

And although you can’t see (easily) what people think and how they feel, you can see what they do and don’t do. And the main thing that they don’t seem to do since the end of 2008, is consuming like they did before the credit crisis started.

Today my gut-feeling of August 17 was confirmed by the CPB. Here are the snips of the CPB Press Release:

The Dutch economy is in recession. In 2012, GDP is expected to decline by 0.5%, while the unemployment level increases by 90.000 persons, to 5.25% of the labour force. The budget deficit goes down to 4,1% in 2012, which is less than previously expected due to the worsened economic prospects.The forecasted 2012 budget deficit passes the ‘signal margin’ by 0.4%.

This December forecast is based on a ‘muddling through scenario’, which assumes that the Eurozone crisis will neither be solved, nor further escalated downwards. The forecast also assumes that the financial markets will see some tranquillity in the course of 2012, while economic growth will also slowly return. However, for this moment it is uncertainty that mostly determines the European economies, which leads to a decrease of the relevant world trade for the Netherlands in 2012 and a negative GDP growth for the Eurozone area as a whole.

The Dutch economy is in recession. The expected slight recovery of economic growth will not be seen until the second half of 2012. Dutch GDP in 2012 will be 0.5% lower, compared to 2011. This economic decline is mostly due to lower foreign trade. In addition, Dutch consumers and investors keep spending levels down, while growth is also negatively impacted by restrictive budgetary policies.

The current forecast is less optimistic about the public budget than the previous forecast of September 2011. This is almost exclusively due to the worsened growth prospects.

The whole 90 page report (in Dutch) can be downloaded by clicking on this link.

Although I agree  with the CPB's 'muddling through scenario' for the Euro-crisis, I still think that the CPB is overly optimistic (see the red text) on the unemployment figures for 2012 and on the date that economic growth will return to The Netherlands.

I expect that the necessary process of debt destruction in the EU will come in the form of the cancer, rather than the car crash (Thank you, Toddo of for the analogy): A slow, but steady and very painful process where all excess debt will be destructed in the end. This will not only be true for the sovereign debt of the PIIGS-countries, but as well for the Dutch mortgage debt bubble that is deflating slowly currently. 

This will be a process of at least three years more, but perhaps even 5-10 years: the more governments try to avoid the inevitable debt destruction, the longer this process will take. And during this time the unemployment will exceed levels of 1994 and 1981, is my opinion. This is, as you know, the worst crisis since 1929 and therefore it makes sense that it causes the worst unemployment since 1929.

Besides that, the Dutch government does everything to reinforce the effects of the negative economic growth by trying to earn an extra €10 bln in additional austerity measures and extra taxes for the coming years, while still avoiding the subject of abolishing the Mortgage Interest Deduction (MID). 

Everybody and their sister (IMF, OECD etc.) warned the Dutch government not to cut the economy down into a coma, but this message was aimed at deaf ears with the current populist/conservative government of CDA and VVD and their silent partner PVV (led by Geert Wilders, the populist wrangler).

It is my take that the results of this flawed policy of new austerity measures, higher taxes and lower benefits in combination with maintaining bad policy like the MID will put the Dutch economy to sleep for at least 5 years. 

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