What economy will the new Dutch government inherit?
Dutch Prime Minister Mark Rutte’s liberal VVD party has won again despite losing seats, keeping the far right in a largely ineffectual position. The Netherlands is one of Europe’s best performing economies, which surely helped see reason ultimately triumph over populism after a campaign dominated by much political noise from Geert Wilders’ anti-immigration party. And yet voters still punished the outgoing coalition heavily. Rutte’s party lost about a quarter of its support and its traditional coalition partner all but collapsed, with the Green-Left party making substantial gains to emerge as an unexpected victor of the night and a potential kingmaker in coalition negotiations. On the face of it the Dutch economy is doing remarkably well, yet voters were clearly not entirely happy with the political status quo. While the Liberals do battle behind the scenes to form a working majority in the fragmented Dutch parliament, we take a look at the economic situation that the new government will inherit.
Click to see full-size image
Amid the recession of 2011 and 2012, Rutte’s government pushed through harsh spending cuts before the Dutch economy began to see the light again at the end of 2013. Since then, bar a few inevitable bumps and blips on the road, headline figures suggest that the economy has gone gradually from strength to strength, at least in comparison with many of its Eurozone peers. GDP growth reached 2.1% last year, significantly above the Euro area average of 1.7%. This year and next, economic growth will decelerate, as elsewhere, but it will still remain above average. Our March Consensus Forecast, obtained by polling 18 leading local and international macroeconomic analysts, sees Dutch GDP growing 1.9% this year and 1.7% next, compared to average growth in the Euro area of 1.6% and 1.5%, respectively.
A competitive economy, the Netherlands is also a standout performer in terms of its current account balance, which we see hitting a surplus of 8.1% of GDP this year and 7.9% next. These figures are well above the Euro area averages of 3.0% and 2.8% of GDP respectively and even beat Germany’s performance (8.0% and 7.6%), the Eurozone member best known for accumulating colossal current account surpluses. As in that country, the weak euro has benefitted the Netherlands’ strong export sector, which will receive a further boost this year from the expected pickup in global growth.
On the fiscal front too, the Netherlands has a stellar record. It quickly corrected its 3.9% deficit in 2012 to return to well within the EU’s 3% of GDP target from 2013 onwards. After coming in at 0.9% of GDP last year, our analysts expect the Dutch deficit to keep diminishing going forward, recording 0.4% of GDP this year and 0.2% in 2018. Again, these figures beat our average deficit forecasts of 1.6% and 1.5% for the Eurozone as a whole.
Luckily for the Netherlands, it has avoided the explosion in public debt levels seen in so many of its Eurozone peers in the wake of the financial crisis. Public debt, which came in at 63.1% of GDP last year, is expected to continue its slow but steady decline to 61.2% this year before reaching 59.4% in 2018, thereby falling within the EU’s 60% desired limit. In stark contrast, Eurozone public debt overall, which was 90.4% of GDP last year, will only decline to 89.6% and 88.4% this year and next.
So far, so good for the Netherlands then. So why has the outgoing coalition still been punished? Of course, not all of it is entirely related to the economy, with the far right having mercilessly exploited other concerns preying on people’s minds in relation to immigration and terrorism. But some of it most definitely is economic in origin. The Netherlands’ strong economic performance is only relative, given that it comes in a context of ongoing Eurozone woes. And, as seen in other countries such as Spain, which has experienced remarkably robust GDP growth in recent quarters despite difficult political conditions, strong growth does not necessarily translate into tangible improvements in the lives of citizens themselves, many of whom are still feeling the effects of the crisis far too acutely.
In the Dutch case, analysts began to celebrate in the third quarter last year that consumers seemed finally to have fully joined the recovery. Private consumption growth jumped in that three-month period as purchasing power improved on the back of tax cuts, declining consumer prices and increasing employment. But growth in consumer spending weakened again in the final quarter, suggesting it may be too early to jump to conclusions.
Public debt may be faring well in the Netherlands, but private debt most certainly isn’t. Last year, Eurostat produced a debt-to-income ratio by comparing total debt per household to the average income per household. And it was not Greece, Italy, Portugal or Spain that topped the list of the most debt-burdened households in the Eurozone, but rather the Netherlands. Hefty outstanding mortgages are responsible for a large chunk of the problem, as the burst housing bubble continues to hang over Dutch consumers and the economy like a sword of Damocles. House prices may gradually have been picking up since the abyss of 2013, but they remain below pre-crisis levels and the residential mortgage debt load in the Netherlands continues to far outstrip the Eurozone average. Add to this the fact that any benefits of the recovery for consumers have been decidedly uneven, with consumer confidence remaining weak among low earners and unemployment still afflicting far more people than it did pre-crisis, and some of the Dutch discontent starts to make more sense.
Not surprisingly, Dutch consumers have therefore not exactly been jumping up and down with glee as the Dutch economy has consistently beaten average Eurozone GDP growth rates in recent quarters. The Netherlands may have a fine current account balance, but many consumers who have suffered falling house prices, unemployment and government austerity measures are continuing to feel the pinch. Indeed, if we look at real household consumption per person, which is probably the best indication of living standards, the Dutch are still consuming less on average than they were a decade ago, whereas the average of the Eurozone is almost back to normal. Mark Rutte may be celebrating just now, but he and whatever new government he forms face some interesting challenges ahead to prevent any lingering discontent among Dutch citizens from spreading further.
Author: Caroline Gray, PhD, Senior Economics Editor
5-year economic forecasts on 30+ economic indicators for 127 countries & 33 commodities.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.
Date: March 16, 2017
TagsIranOilEastern EuropeAgricultural CommoditiesBase Metals CommoditiesChinaoil pricesUSAUnited KingdomRussiaEconomic Growth (GDP)MENATPPVietnamSub-Saharan AfricaMajor EconomiesLatin AmericaJapanGreeceAustraliaIndiaPrecious Metals CommoditiesUKAsiaVenezuelaUnited StatesG7HealthcareCommoditiesEconomic DebtGermanyForexAfricaMexicoTunisiaBrazilColombiaGoldInfographicprecious metalsBitcoinOPECEuro AreaEnergy CommoditiesInflationSpainPortugalItalySouth AfricaCryptocurrencyArgentinaTurkeyUkraineConsensus ForecastBanking SectorEmerging MarketsUnemployment rateEurozoneCompany NewsExchange RateNordic EconomiesHousing MarketIMFEuropean UnionCanadaInvestmentFranceBrexitTrade
Costa Rican GDP is forecast to grow 2.8% in 2019 and 2.8% again in 2020. Read more: https://t.co/q16b5EQF4o
11 hours ago
Central America: Despite ebbing U.S. momentum, the strong U.S. labor market should continue to support remittances… https://t.co/sU8LYPh1Cp
13 hours ago
Congratulations to the top forecasters for Asia-Pacific countries in 2018. We've just announced the winners of the… https://t.co/PgojWwtVGv
14 hours ago
15 hours ago
FocusEconomics analysts project Brazilian growth of 1.8% this year, which is down 0.3 percentage points from last m… https://t.co/lrrjMFnv8o
15 hours ago
- Which will be the most miserable economies in 2019?
- Only by freeing Nigeria from its dependence on oil can Buhari truly take Africa’s giant to the next level
- An Analysis of President Trump’s 2020 Budget
- The World's Fastest Growing Economies
- President Sebastian Piñera aims to bring his elder brother’s private pension system into the 21st century
- Brexit Scenarios: Consensus of 14 Economic Analysts
- Sweden just formed a new government and approved its 2019 budget: what does it mean for the economy?
- Which countries have the highest public debt levels?
- Predictions for the global economy in 2019 from 13 experts
- Gurdgiev: Predictions for the global economy in 2019
- Daniel Lacalle's ideas for 2019: Change of cycle.
- Vietnam Poised to Profit from Free Trade Agreement Opportunities
- Canada in 2019: Interview with a Top Economic Forecaster
- Pound Sterling 2019 Exchange Rate: Projections from Leading Analysts
- Expectations for Latin America’s Economy in 2019
- Ethiopia and Rwanda: From Destruction to Development
- Key commodities trends to look out for in 2019
- What drove Gulf neighbors to bail out Bahrain?
- The Four Financial Bubbles and Their Impact on the U.S. Economy
- The Poorest Countries in the World
- Italy: The sick man of Europe
- What does Bolsonaro's presidential win mean for Brazil's economic outlook?
- The World's Top 10 Largest Economies
- In Latin America, taxpayers are tapped to shoulder the burden of a bank bailout
- How and when will the next financial crisis happen? - 26 experts weigh in
- China and Africa: A partnership under the spotlight
- The conditions are ripe for a Global Financial Crisis 2.0
- Uncertainty, instability and fear haunt a generation of Argentinians
- 5 things: What to expect for Mexico's economy in 2019
- 5 things: Brazil's economic downturn and what to expect going forward
- Emerging Market Currency Crisis: Everything you need to know
- Which ASEAN countries are most exposed in the event of a U.S.-China trade war?
- 75 Top Economics Influencers to Follow
- Emerging Markets Economic Outlook 2018 and 2019
- The Faces Behind Latin America’s Key Institutions
- 2019 Economic Outlook for the Top Oil Producing Countries
- Is your cup of coffee about to get more expensive going in to 2019?
- The Economic Implications of an Aging Global Population
- Can the Wisdom of the Crowds predict the results of the 2018 World Cup?
- Railway Mania: The Largest Speculative Bubble You’ve Never Heard Of
- From Riches to Rags: Have Cryptocurrencies Crashed for Good?
- Investment looks to Latin America, but forecasts are not encouraging
- Turkey: Erdogan has cemented his grip on power - now what about the economy?
- How can Latin America’s business environment benefit from technological change?
- Mexico: A look at the past, present and future as elections yield AMLO victory
- Italy’s New Populist Government and the Eurozone: Prelude to a Crisis?
- Latin America moves toward increased integration as U.S. protectionism grows
- How can Latin America increase productivity without affecting the quality of employment?
- How will Saudi Arabia's economy benefit from lifting the women's driving ban?
- Which countries are the most prepared for the upcoming digital revolution?
- India Under Pressure from the U.S. on Trade Policy
- The Story of Steel
- Latin America is the World Leader in eCommerce Growth Despite Serious Challenges
- What the TPP means for trade in Latin America
- Elections in Russia: Analysis and Implications
- Nearly a Third of Latin Americans Have No Right to a Pension
- A Look at Healthcare Models Around the World
- Newly-elected Chilean President Sebastian Piñera faces a myriad of challenges - economic and otherwise
- The Economic Effects of Trade Protectionism
- Regional Disparity: The Dark Side of Inequality in Latin America
- Coal: The story of the world's most abundant fossil fuel
- Venezuela's Electoral Conundrum
- Gold: The Most Precious of Metals (Part 3)
- Trump's 1st Year: 95 Analysts Surveyed on U.S. Economy
- The Latest on China and What's in Store for 2018
- An in-depth look at the Eurozone’s booming economy and the challenges that lurk in the shadows
- Increasing poverty in Latin America takes a breather thanks to improving economic dynamics
- Is Spain doing enough to address its high youth unemployment rate?
- Has Latin America gone far enough in reducing barriers to international trade?
- Commodities Outlook: Oil, Natural Gas, Coal, Lead & Tin
- 21 experts tell us what the future looks like for cryptocurrencies and blockchain
- Turkish lira plummets to all-time low on Erdogan’s monetary feud and tense U.S.-Turkey relations
- Copper: The first metal mastered by man
- The Mercosur-EU Free Trade Agreement: Obstacles & Opportunities
- Nigerian Economy Still Treading Water Thanks to Oil Sector
- Elections in Chile: What the results could mean for the economy
- QE’s Untold Story: A Chart That Fed Correspondents Need To Investigate
- Holland’s fragile one-seat majority government targets economic growth at the expense of fiscal sustainability
- South Africa: Economy at a tipping point?
- Latin American Commodities: What’s behind the increase in demand and prices?
- Is the UK really "shackled to a corpse"?
- Spain-Catalonia: 7 economic experts weigh in on how the situation will affect the outlook
- How well is Spain's labor market doing since the crisis?
- Which countries will have the highest and lowest inflation in 2017?
- How vulnerable is Latin America to economic crises today?
- Iron ore facts and common questions answered
- The bulging economic costs of obesity
- How much investment is needed to salvage Latin America’s crumbling infrastructure?
- A Look at the Potential Impact of Brexit on the Dutch Economy
- Emerging Markets Are Kicking Into Higher Gear In 2017
- Why is foreign direct investment in Latin America falling again?
- Are Central Banks Nationalising the Economy?
- Bounty or burden? The impact of refugees on European economies is far from clear
- What’s the future of U.S.-Latin America trade relations?
- Taxes or cutbacks? Latin America's challenge of sustaining spending without causing debt to skyrocket
- Are uranium prices making a comeback?
- Taxing the Economy: Achieving a Delicate Balance
- How will emerging market economies perform in 2017?
- How will Latin America’s upcoming lengthy election cycle affect the reform agenda and credit ratings?
- Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
- CEOs Rank Top Economies for Growth Opportunities
- The Mobile Ecosystem & Latin America's Economy
- Prospects and Challenges for the Global Economy: Interview with Tim Cooper from BMI Research
- How will the Fed reduce its balance sheet & and how will the ECB end QE? - 19 economic experts weigh in
- Thoughts on "unwinding" QE from Frances Coppola
- The Fed and ECB at a crossroads: Unwinding QE
- Spain: The economy that continues to silence the critics
- Latin America: The Most Unequal Region in the World
- The History of OPEC: Has it been a Success?
- FocusEconomics Announces 2017 Analyst Forecast Awards Winners
- Latin America’s rising unemployment bucks nearly decade long trend
- Escape from the Central Bank Trap by Daniel Lacalle
- China's economic rebalancing act: What to look out for in 2017
- Driving Growth in Latin America: Challenges & Priorities
- Is the Global Economy Rebalancing?
- Commodity exporters face challenging times
- Recent Global Events Facilitate Mercosur-Pacific Alliance
- 23 economic experts weigh in: Why is productivity growth so low?
- Mexico's outlook as Trump nears 100-day mark
- Interview with Oxford Economics Senior Economist on implications of the possible outcomes of the French Presidential Election
- The anxiety of the small saver in a world of negative interest rates
- Brexit negotiations. Between Uncertainty and Urgency
- An Economic History of the EU from El Blog Salmón
- Baby Boomin': Implications of high population growth in Latin America
- Survey of International Economists Predicts a Le Pen Defeat in French Elections, Says Macron has Best Economic Plan
- Spain in a global context: developed economy with some challenges
- How much is crime costing Latin America?
- Predictions & Estimates from Economist Daniel Lacalle
- What economy will the new Dutch government inherit?
- “The data is not a true reflection of reality in India” Interview with Société Générale India Economist
- What are the prospects for Emerging Economies in 2017?
- What to expect in Asia for 2017
- Top Economics & Finance Blogs of 2017
- Latam to Resume Moderate Growth in 2017 but Important Risks Plague Outlook
- 4 Key European Elections That Will Impact the Economy in 2017
- How are security concerns and political chaos affecting Turkey’s economy?
- Global growth to edge up in 2017
- Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017
- What does Donald Trump mean for the U.S. economy?
- How will emerging markets perform in 2017?
- The economic impact of a break in U.S.-Philippines ties
- Trump election: Base metals surge due to infrastructure plan
- 5 updates on the Venezuelan economic crisis
- Canada: When your neighbor’s house is on fire…
- Short-term pain before long-term gain? A look at French labor reform and economic growth
- Asia: Unremarkable growth & unfulfilled promises?
- How India's latest monsoon is affecting the economy
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- Russian economy update in wake of OPEC deal announcement
- The Wisdom of the Crowds and the Consensus Forecast
- Can the peso predict the U.S. election results?
- There's no end in sight to the Venezuela crisis
- A Look at the European Union Political Calendar
- Survey of international economists shows uncertainty surrounding elections damaging U.S. growth prospects
- FocusEconomics partners with leading online statistics provider Statista
- China: Recent postive economic data may be papering over the cracks
- Sub-Saharan Africa's 2016 & 2017 growth rates
- The Italian Dilemma: Weak banks pose risk to already faltering domestic demand
- How much money do migrants from Latin America send home?
- The U.S.' (Not So) Mysterious Case of the Missing Men
- What to expect from the G20 economies by 2020
- The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit