Search This Blog

Thursday, 28 February 2013

Dutch Central Planning Bureau confirms what everybody already knew: The Netherlands is not going to stay within the 3% EU budget deficit threshold for 2013 and 2014.

Today, 28 February 2013, was an important day for the cabinet of Prime Minister Mark Rutte (Liberal-Conservative VVD party) and vice-PM Lodewijk Asscher (PvdA; Dutch Labour).

Today, the Dutch planning data for 2013 and 2014 have been presented by the Dutch Central Planning Bureau (

Frankly, the longterm value of these CPB forecasts is in reality close to zero, due to the fact that the real world seldomly sticks to the plannings and models of the CPB.

However, the data is useful as an indicator for the success rate of the current cabinet's policy, as it calculates the projected outcomes from political decisions that have been made in the (recent) past by the cabinet (and its predecessors, as a matter of fact).

A very important figure in the CPB-forecasts is the (forecasted) budget deficit for 2013 and 2014. This budget deficit for both years should come under the 3% threshold that has been set in the European Stability and Growth Pact (SGP). This pact has been reinforced in 2011 by the Euro-zone members, as a consequence of the unstable financial and economical situation in the PIIGS-countries (Portugal, Ireland, Italy, Greece and Spain).

The fact that The Netherlands for the last five years in a row couldn’t meet the demands, set by the SGP, has been quite painful for PM Mark Rutte. He and former finance minister Jan Kees de Jager repeatedly banged the drum for ‘sticking to the budget’ in the South-European countries: a policy which didn’t owe them much applause from these countries.

Today, the CPB data was again a great disappointment for the liberal/labour cabinet, although the figures themselves were not really bad at all. Still, the (dim) hopes of the cabinet that The Netherlands would stick within the 3% EU budget deficit threshold in 2013 and 2014 after all, were blown to smithereens.

Instead of directly announcing yet other austerity measures, the cabinet wisely decided to keep its policy ‘as is’ for 2013.  For 2014, the cabinet did promise additional austerity measures to the tune of €4 bln.

Let’s have a look at the English press release of the CPB and the accompanying data. Afterwards, I will share my comments to the data and forecast.

CPB expects a budget deficit of 3.3% for 2013 and 3.4% for 2014. Despite a slight recovery later on in the year, GDP volume in 2013 will fall by 0.5%. For 2014, the economy is expected to grow again by 1%. Unemployment in 2013 will increase by 90,000 people to 560,000 and for 2014 this will be 575,000.

For 2013, projected economic growth has not been adjusted compared to last December’s projections. Private consumption in 2013 will decline sharply (-1,5 percent), as it did last year. Housing investments are projected to decline even more – by 7%. In contrast, the export of domestically produced goods shows signs of recovery. Despite this fact, GDP volume will fall for the second consecutive year, by 0.5%, following the drop of 0.9% in 2012. This causes employment to decline again and unemployment therefore to rise further, to 6,25% of the labour force.

The projected recovery for 2013 will become evident in the year-on-year figures for 2014, at which time growth will return, by 1%. The limited recovery largely will be due to a more positive development of the global economy under less elaborate deficit-reducing measures than those in effect for 2013. Domestic spending, however, is not expected to contribute to this growth and, despite this limited growth, unemployment will continue to increase up to 6,5%.

In 2013, the sizeable deficit-reducing measures will cause the budget deficit to increase by 0.7% of GDP to 3.3%, with a subsequent marginal increase up to 3.4% in 2014. The Maastricht criterion of a 3% maximum deficit will be exceeded in 2013 by 2 billion euros and in 2014 by 3 billion. These exceedings are accomplished despite substantial incidental factors (e.g. telecom auction, the SNS Bank’s nationalisation, one-off resolution levy, higher recession-related dividend from Dutch Central Bank) which on balance will have a positive effect on the budget deficit (1 billion euros in 2013 and 2 billion euros in 2014).

Here is a table with the most important data from the Central Planning Bureau

Crude oil price (Brent, $)
Exchange rate (dollar p euro)
Long-term interest rate
(level in %)
Gross domestic product
(GDP, economic growth) (%)
Value gross domestic
product (GDP) (bln euro)
Private consumption (%)
Exports of goods
(non-energy) (%)
of which domestically
produced (%)
re-exports (%)
Imports of goods (%)
Consumer prices (CPI) (%)
Compensation per full-time
employee market sector (%)
Gross wage Jones family
(in euro's)
Purchasing power (Jones,
one-income household) (%)
Purchasing power
(median, all households) (%)
Unemployment rate
(% labour force)
Unemployment rate,
national definition
(% labour force)
Production (%)
Labour productivity (%)
General government financial
balance (% GDP)
Gross debt general
government (% GDP)

I made the most interesting data in this overview bold. I hope that the other data speaks more or less for itself.

Again, although today's data for 2013 and 2014 seems negative for the cabinet, I suspect that some data is still much too optimistic. 

I said the same of last year’s CPB outlook and I have proven to be right about that: look for instance at the Dutch GDP, the private consumption and unemployment figures in last year’s outlook and compare them to the real data over last year in today's outlook.

Now my comments on this year’s bold data: 
  • As far as I’m concerned, there is the chance of a snowball-in-hell that the Brent-Crude price in 2013 and 2014 will remain at about the same level as in 2012. The shale-gas revolution in the United States, with the plummeting prices for Liquified Natural Gas (LNG), is already diminishing the prices for coal as a fuel. In my opinion, it will also affect the demand and thus the price for oil and oil-derivatives.
    • Although oil is still hard to replace as a fuel in cars and in the plastics industry, the shale-gas revolution might put LPG (Liquified Petrol Gas) or LNG (back) at the map as a relatively clean car fuel.
  • The stable exchange rate between Euro and Dollar in 2013 and 2014 in this forecast, seems somewhat out of touch in light of the mounting currency conflict between Japan, China and the US/UK vs Europe.

    A more expensive Euro would change the Dutch economic picture dramatically, in spite of the fact that The Netherlands is relatively (!) insensitive towards a cheaper dollar, according to Prof. Sylvester Eijffinger.
    • With a cheaper dollar, the purchasing power of all importing countries diminishes, whose local currency is closely connected with the dollar: countries like Russia, Ukraine, Argentina, Brazil(?) etc. The higher prices for Dutch products will definitely have an effect on Dutch (agricultural) exports and thus on Dutch economic prosperity.
  • I’m really puzzled how the CPB can think that the unemployment will remain relatively stable in 2013 and 2014 and the private consumption might even improve in 2014.
    • Mass lay-offs have been the name of the game, since mid-2011 and their number is only soaring in the financial industry, Building&Construction, Transport&Distribution and a dozen of other industries in The Netherlands.
    • In my humble opinion, unemployment will rise further until 8.25% at the end of 2013 and perhaps even 9% in 2014.
    • This will have a devastating effect on consumption: this will not only drop in 2013, but also in 2014, is my conviction.
Summarizing, I would say that the most important task of the current cabinet is not to choke the Dutch economy to death in the coming years, in a crazy attempt to meet the SGP-standards. 

“We” did that in Greece, Spain and Portugal and we are threatening to do that in Italy, France and The Netherlands. Let this data please be a warning for this cabinet that both excess austerity, as well as “mindless” Keynesian spending can never be the solution for this economic crisis. The cabinet must find a balance between austerity and stimulus for topics like, education, innovation and scientific development.

Like I wrote a few months ago:

What the new cabinet should do is not firing up the intra-European exports again, for reasons that I described earlier. The cabinet should try to stimulate the Dutch internal economy and consumer confidence. Not through a brainless Keynesian stimulus-package that fills potholes and builds bridges to nowhere, but by stimulating education, development of skills and craftsmanship,  innovation and creativity. And maybe even through developing an old-fashioned industrial policy: it worked for the Germans during the last decade. Hell, did it!

No comments:

Post a Comment