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Dutch economy may shrink 3.5 pct

“The Netherlands finds itself in a heavy recession,” Prime Minister Jan Peter Balkenende told reporters as the Netherlands Bureau for Economic Policy Analysis, CPB, undercut the government’s 1.25 percent economic growth projection for 2009.

The bureau, which advises the government on budget planning, also forecast a 3.0-percent budget deficit for 2009 and 5.5 percent for 2010.

This was a sharp switch from the government’s September projections of a surplus of 1.2 percent of total economic output for 2009 and 0.8 percent for 2010.

The CPB said it expected unemployment to rise to 5.5 percent in 2009, up from 3.9 percent in 2008, and to 8.75 percent in 2010.

“The effects of the financial crisis are much worse than expected,” CPB head Coen Teulings told reporters.

“The core of the problem is world trade.” Trade makes up a large part of Dutch gross domestic product, but exports fell 7.8 percent in December and 11.3 percent in November last year as the global crisis started taking its toll.

Last week, Dutch statistics agency CBS said the economy had entered recession in the fourth quarter of 2008, posting its biggest decline since the beginning of the 1980s.

The economy shrank 0.9 percent in the fourth quarter and 0.3 percent in the third, it said, blaming a strong drop in exports.

Receiving the latest statistics, Balkenende bemoaned this “new and serious trial” for the country, saying joblessness was rising to levels “long not experienced in our country.”

“The Netherlands hasn’t seen such an economic reversal for a very long time. The pace at which this is happening is unprecedented,” he said.

Balkenende said the cabinet would make an assessment of investments and savings “so that we can tackle this crisis and emerge from it stronger.”

He warned against hasty decisions, and said simple solutions did not exist.