Dutch economy to shrink a record 4.65%

The Dutch economy will contract a record 4.75 per cent this year, unemployment will rise to 5.5 per cent and the budget surplus will become a 4.1 per cent deficit, government advisers said yesterday.

"Over the year as a whole, 2009 will show a historical output fall," the Bureau for Economic Policy Analysis, which advises the government, said in a statement.

"Exports in particular will be hit hard this year, because the export market will slump by an unprecedented 15.25 percent in the projection" - a post-1945 low.

As unemployment rises, consumers tighten their belts, and household consumption is expected to drop 2.75 per cent in 2009.

The bureau forecast a further 0.5-per cent drop in the economy for next year, as well as 9.5 per cent unemployment and a public deficit of 6.7 per cent.

In 2008, the budget showed a public surplus for the third year running for the first time since 1961.

"On the basis of those elements which can be quantified, the public finances will come out 0.5 to 1.5 percentage points of GDP worse than assumed at the start of this term of government," said the statement.

The figures formed part of the Queen's Economic Forecast, published annually in June as input for the government's budget preparations.

Last week, the central bank said the economy was expected to contract 5.4 per cent this year. The previous record low since records began in 1922 was a drop of 3.6 per cent in 1931.

Before the global economic crisis reached its peak, the government itself had projected 1.25-per cent economic growth for 2009 and forecast budget surpluses for 2009 and 2010.

The Dutch economy entered recession in the fourth quarter of 2008.

Under EU and eurozone rules, governments are supposed to keep public deficits to no more than three per cent of output, moving into surplus in times of growth. The public budget covers the budgets of central government, social and welfare services and local government.