Dutch Recession Woes Haunt Rutte as Deficit Breach Persists; “The increase in unemployment is alarming”

Dutch Recession Woes Haunt Rutte as Deficit Breach Persists

Record unemployment in the Netherlands is compounding Dutch Prime Minister Mark Rutte’s dilemma on how far to push austerity measures needed to curb the country’s deficit.

Consumer confidence due today and statistics on house prices, consumer spending and manufacturers’ confidence next week will confirm just how far the slump has damaged sentiment in the euro-area’s fifth largest economy. Data yesterday showed the jobless rate reached an 18-year high of 8.1 percent in March, with 643,000 people out of work.

Rutte’s coalition government agreed on a four-year, 16 billion-euro ($21 billion) austerity package in October and will decide later this year on additional measures of 4.3 billion euros for 2014. The Netherlands, in the throes of a housing- market slump and facing its third recession since 2009, has breached the European Union’s deficit limit of 3 percent of gross domestic product limit since then.

“The increase in unemployment is alarming,” Sweder van Wijnbergen, a professor of economics at the University of Amsterdam, said in an interview. “The Dutch government has to reduce its deficit, so cannot be an engine of growth. Business investment isn’t likely to pick up before a recovery, so it can’t lead us out of the recession either.”Shrinking Economy

The Dutch jobless rate rose by 0.4 percentage point from 7.7 percent in February, the national statistics bureau CBS said yesterday. That matches the level of 1995, CBS’s Peter Hein van Mulligen said in an interview. Based on EU methods, unemployment rose to 6.4 percent.

The International Monetary Fund predicted this week that the Dutch economy will shrink 0.5 percent in 2013. It expects growth to pick up later this year, leading to expansion of 1.1 percent in 2014. The Washington-based institution sees unemployment on the EU basis rising to 6.5 percent in 2014.

“The Dutch economy is performing badly,” Nico Klene, a senior economist at ABN Amro Bank NV, said in an interview. “We expect unemployment to increase until 2014, though the increase will become smaller.”

Klene said that while industrial production may start improving later this year, helping the labor market, unemployment in construction may keep rising until 2015.

Construction Jobs

Joblessness last year increased the most in the building industry. Almost a quarter of the 89,000 positions that were cut in the Netherlands in 2012 came from that area.

“The recovery of the Dutch economy largely depends on the recovery of the housing market,” said Arnoud Boot, a professor of corporate finance and financial markets at the University of Amsterdam.

Data published on April 22 will show whether house prices, which have fallen by a fifth since 2008 and slid more than 10 percent last year, are continuing their slump. Consumer spending numbers will come the following day and producer confidence data are released on April 24. Neither gauge has shown a positive result since 2011. A report on consumer confidence, which has been negative since October 2007, is scheduled for 9:30 a.m. today in The Hague.

The Netherlands had the outlook on its AAA credit rating cut to negative in February by Fitch Ratings, which cited problems in the banking system and difficult economic conditions.

Austerity Deal

While Rutte last week postponed additional 2014 austerity measures in a deal with labor unions and business groups, his April 17 pledge to lawmakers to meet the EU’s budget ceiling may force him to implement them after all. The country’s planning agency sees the Dutch deficit at 3.3 percent of GDP this year, before increasing to 3.4 percent in 2014, according to its most recent estimate published Feb. 28.

Still, the Netherlands enjoys the third-lowest borrowing costs among euro countries as one of the remaining top-rated nations in the currency. The Dutch 10-year bond has a yield of 1.64 percent. Only Germany, at 1.23 percent, and Finland, at 1.43 percent, command lower rates to borrow for a decade.

“I’m calling on people to stop being so somber,” Rutte told reporters in The Hague on April 12 when asked about the accord on austerity. “The recovery is becoming visible, and with this agreement we hope that people start looking more positively at the economy.”

To contact the reporter on this story: Corina Ruhe in Amsterdam at cruhe@bloomberg.net