Article / 13 March 2017 at 13:30 GMT

The Dutch left crisis behind, but distrust their government

  • Macro data show the Dutch economy is performing well
  • Unemployment is just above 5% and a budget surplus within reach
  • The Dutch government is expected to see its number of seats fall sharply
  • Geert Wilders's PVV is expected to gain considerably, but not govern
  • Banking, housing and potential border controls remain a challenge
Rotterdam
The economic outlook for the Netherlands is bright. Port of Rotterdam, Photo: Shutterstock
 
By Clemens Bomsdorf

Dutch voters go to the polls on Wednesday in a fiercely contested parliamentary election against the backdrop of a strong economy, but the governing coalition is expected to be dealt a severe blow by disillusioned voters amid a strong challenge from the anti-immigration far-right.

Unemployment in the Netherlands is down to a five-year low 5.3%, economic growth is up to 2.1%, and the budget deficit has been wiped out. Such positive economic data would normally secure a high chance for the government to be re-elected. 

But the March 15 election is different. It could lead to Geert Wilders's right-wing populist one-man Party for Freedom, or PVV, emerging as the biggest party in the 150-seat parliament and thereby make it difficult for the incumbent prime minister Mark Rutte and his liberal VVD to form a new coalition.

In the aftermath of the June 2016 Brexit referendum upset in the UK and Donald Trump's surprise US election victory in November, the Wilders phenomenon has been seen as a potential next wave of anti-establishment populism to sweep through a western democracy.

The Dutch vote is also the first of three elections to be held this year in European Union founder member countries, with populist parties in France and Germany also hoping to score gains on the back of anti-immigration and anti-establishment sentiment among voters.

But even if the PVV were to win, Wilders, who has pledged to close mosques and bar Muslim immigrants in what he sees as a fight against the Islamisation of Europe, is expected to be kept outside any new ruling coalition as all of his opponents refuse to govern with him. 

Opinion polls show that Wilders, who has also vowed to take the Netherlands out of the EU, has lost a clear lead, putting him neck-and-neck with the prime minister's party as the vote draws near.

Saxo Bank’s Christopher Dembik in early March analysed what worries Dutch voters and explained why there will be no Nexit — a Netherlands' version of Brexit. 

Here we shed some more light on the macro side, with data on the current state of the Dutch economy, and take a look at its outlook.



The Netherlands is definitely one of the more affluent members of the EU. In fact, when it comes to GDP per capita adjusted by purchasing price parity, it is on the forefront in the EU, overtaken only by the two richest countries.

The unemployment rate has been falling for some time now, and in January reached just 5.3%, a level the CPB Netherlands Bureau for Economic Policy Analysis in December predicted for 2017. In 2014, still 7.4% of the labour force was unemployed.

Dutch de facto and projected unemployment rate

“Economic growth will continue. For both this year and 2017, GDP is projected to grow by 2.1%. Next year, unemployment will decrease to 5.3% and the government budget will be balanced. Purchasing power will increase by 0.7%,” CPB’s December forecast reads. 

Similar wording and GDP growth forecast comes from the IMF, which under the headline “A Strengthening Recovery with Remaining Challenges” also in December wrote: “The economic recovery is broad-based and has been gathering speed. We forecast growth at about 2 percent in both 2016 and 2017. Consumption and investment are expected to remain the main drivers of growth, reflecting improving confidence and rising house prices, while net exports are expected to slow down owing to weak external demand. Sustained growth should allow for a further decline in the unemployment rate, albeit at a slower pace due to increasing labour supply.”

Dutch de facto and predicted GDP growth rate
CPB GDP growth
Source: CPB Netherlands Bureau for Economic Policy Analysis, December 2016 
 
The International Monetary Fund has said the Dutch banking sector and housing market are in need of reform. "The banking sector," the IMF has said, "is well-capitalized and resilient to risks, but faces challenges associated with low interest rates and continued reliance on wholesale funding,” and “the implementation of macro-prudential measures should be accelerated to lessen financial vulnerabilities in the household sector.”

Also important would be efforts to fight falling productivity. “Starting from high levels, labour productivity growth has slowed sharply over the last decade for reasons that are not entirely clear, as is the case in many advanced economies," the IMF has said. "This has the potential to undermine long-term growth in the context of a shrinking labour force. To address this to some degree, further measures aimed at fostering public and private R&D and promoting life-long training would be welcome.”

The CPB a year ago warned against policies appreciated particularly by the PVV mindset when warning that “reinstatement of border controls in Schengen countries will have a negative impact on the economy, as it will restrict trade flows via the higher costs related to trade and longer waiting times at the borders. Negative effects can also be expected from the restrictions on the free movement of people between these countries.”

valkenburg-castle-ruine
Unlike Valkenburg castle, the Dutch economy is far from ruined. Photo: Shutterstock


— Edited by John Acher

Clemens Bomsdorf is a consulting editor at TradingFloor

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