The situation in 2004 According to the most recent data, real GDP fell by 0.

9% in 2003, the first time that overall economic activity contracted since 19 2. !o"ever, economic activity recovered in the second half of the year. #his recovery contin$ed into 200% and available data and indicators sho" a steady, albeit grad$al, im&rovement in $nderlying economic conditions. 'ncreasingly, the D$tch economy benefited from booming international trade. At the same time, domestic demand remained lac(l$stre, as &rivate cons$m&tion "as held bac( by "ea( ho$sehold dis&osable income and lo" confidence, fiscal &olicy "as tightened, and investment ad)$sted to lo" &rofitability d$ring the do"nt$rn. #he labo$r mar(et deteriorated in a lagged res&onse to the do"nt$rn, b$t the decline in em&loyment "as more moderate in the second *$arter, "hile over the s$mmer the seasonally ad)$sted $nem&loyment rate even fell slightly. +ons$mer &rice inflation decreased mar(edly in the first nine months of the year, to 1.0% in ,e&tember, the lo"est rate since -$ne 19 9, reflecting "ea( economic activity, lo" im&ort &rices, and the effect of the agreement among social &artners to moderate "age increases. Sluggish recovery in domestic demand .conomic activity is forecast to f$rther im&rove over the &ro)ection &eriod, albeit only grad$ally. #his mainly reflects the sl$ggish &erformance of domestic demand, &rimarily &rivate cons$m&tion. A recovery in &rivate cons$m&tion a&&ears to be held bac( not only by "ea( dis&osable income, b$t also by lo" confidence among cons$mers. #his seems to reflect inter alia the $ncertainty among cons$mers concerning the conse*$ences of the restr$ct$ring of the social sec$rity and &ension systems, as "ell as increasing tensions bet"een the government and social &artners. 'n 200/, &rivate cons$m&tion gro"th is e0&ected to reach 0.9%, com&ared to 0./% in 200%. +ons$m&tion is e0&ected to gro" modestly in 200/, in s&ite of "ea( real dis&osable income 1d$e to the moderate rise in com&ensation, f$rther increases in &ension &remi$ms, the im&act of higher oil &rices, and fiscal tightening2 as the ho$sehold savings ratio decreases some"hat. Private cons$m&tion gro"th "ill be barely more than 1% in 2003, b$t this is largely d$e to the mechanical im&act of the reform in the healthcare system that "ill ta(e &lace in that year.3 #he reform sho$ld im&ly a shift in the recorded e0&endit$re from &rivate cons$m&tion to &$blic e0&endit$re on health care. 4hile fiscal restraint sho$ld hold bac( government cons$m&tion and &$blic investment, &rivate investment is e0&ected to accelerate in res&onse to an im&rovement in &rofitability and im&roving demand conditions. #he relatively lo" ca&acity $tilisation in the near term "o$ld, ho"ever, militate against a shar& rise in the investment ratio. 'n contrast to the relatively sl$ggish recovery in domestic demand, the contrib$tion from net e0&orts sho$ld remain b$oyant, as D$tch e0&orters benefit from the strength of "orld demand and an im&rovement in com&etitiveness. Des&ite high oil &rices, inflation sho$ld remain relatively s$bd$ed and &ic( $& only slightly in 2003. #his relatively benign inflation develo&ment res$lts from the im&act of moderate "age increases, a cyclical &ic(5$& in &rod$ctivity gro"th, and "ea( im&ort &rices. #he labo$r mar(et "ill still deteriorate in 200/, "ith the $nem&loyment rate &ea(ing at /.0%. !o"ever, as em&loyment gro"th is e0&ected to reach 1.2% in 2003, $nem&loyment is forecast to fall slightly in that year. Deficit to fall in response to economic recovery and fiscal tightening Ann$al national acco$nts confirmed a general government deficit of 3.2% of GDP in 2003, an increase of 1.3% of GDP com&ared to the &revio$s year. #his mar(ed deterioration occ$rred des&ite s$bstantial fiscal tightening. 't sho"s the sensitivity of D$ch &$blic finances to the dee& and &rotracted economic slo"do"n. !o"ever, other factors, incl$ding the rise in ta05 e0em&t &ension &remi$ms, ta05ded$ctible interest &ayments on mortgages, and a larger5than5e0&ected rise in the deficit of the s$bsector local government also &layed a role in the "idening of the deficit. 'n order to stem the "orsening of the &$blic acco$nts, the

a$thorities im&lemented a s$&&lementary &ac(age of savings e*$ivalent to 0.3% of GDP in A&ril 200%6 aro$nd half of these meas$res "ere of a one5off nat$re. As a conse*$ence, the general government deficit is e0&ected to fall to 2.9% of GDP in 200%. #he 200/ b$dget contains consolidation meas$res e*$ivalent to aro$nd half a &ercentage &oint of GDP. #he deficit5red$cing meas$res in the 200/ b$dget com&rise c$ts in health e0&endit$res, increases in income ta0 rates, red$ced access to $nem&loyment benefits, higher disability &remi$ms, and the &hasing o$t of s$bsidies on lo"5&aid labo$r. 7or a large &art, the savings in 200/ reflect the str$ct$ral im&act of meas$res that "ere &art of the A&ril 200% ad)$stment &ac(age. #he main additional savings in the 200/ b$dget are an increase in the rate for the first t"o income ta0 brac(ets and f$rther c$ts in net s&ending of ministries. 'n 2003, an end to fiscal facilities for early retirement sho$ld also hel& im&rove the general government balance. 'n the "a(e of fiscal tightening and a recovery in reven$es in line "ith the e0&ected economic recovery, the deficit is e0&ected to fall to 2.%% of GDP in 200/ and 2.1% of GDP in 2003. 8y contrast, the government debt to GDP ratio is &ro)ected to rise over the forecast hori9on as a conse*$ence of the rather modest &ic(5$& in nominal GDP and the &ersistence of a headline deficit. #he debt ratio is e0&ected to increase from /%.1% in 2003 to / .%% in 200/. The Netherlands: 5 consecutive years of growth at 3 or more Gro"th. #he :etherlands emerged $nscathed from the cyclical slo"do"n "hich follo"ed the crisis in the 7ar .ast, recording GDP gro"th of 3.9% in 1999, only slightly do"n on 199 1%.1%2. GDP gro"th slo"ed significantly bet"een mid5199 and mid51999 b$t too( off again in the second half of 1999, a develo&ment that "as confirmed in the first half of 2000 1$& %.%% yearon5 year2. .ven more than in the &revio$s years, gro"th in 1999 "as driven by &rivate cons$m&tion, "hich rose by %.%%, the same rate as in 199 , b$t also by investment, "hich increased by 3./% against %.1% in 199 $naffected by the tem&orary fall in &rod$cer;s confidence at the end of 199 . 'n contrast, e0&ort gro"th slo"ed shar&ly 1/.3% against <.%% in 199 2, albeit by m$ch less than had been feared, and &ic(ed $& again bris(ly in the fo$rth *$arter of 1999. GDP sho$ld accelerate f$rther this year to aro$nd %.3%. Domestic demand "ill contin$e to be b$oyant, &artic$larly &rivate cons$m&tion, "hich "ill be $nder&inned by strong em&loyment gro"th, the relatively ra&id rise in "ages and &robable "ealth effects res$lting from the shar& increase in asset &rices over recent years. 'n addition to these factors, "hich have been in evidence for several years no", the ta0 reform d$e to enter into force on 1 -an$ary 2001 is li(ely to im&act on the economy= ho$seholds in &artic$lar "ill &robably antici&ate the increase in the standard >A# rate from 1<./% to 19% by ste&&ing $& &$rchases of d$rable goods in the last fe" months of the year. #otal investment sho$ld &ic( $& slightly in relation to 1999, &$blic investment &roving &artic$larly b$oyant. ?astly, e0&orts "ill benefit from strong gro"th in international trade and from the de&reciation of the .$ro, "hich "ill com&ensate for "age costs rising significantly faster than in neighbo$ring co$ntries. GDP gro"th can be e0&ected to slo" some"hat ne0t year, to aro$nd %%, and in 2002, to aro$nd 3@%. Private cons$m&tion "ill &robably remain &artic$larly dynamic, b$oyed $& by the very solid increase in &ersonal dis&osable income 1$& by abo$t 10% in nominal terms and 3% in real terms2 that "ill be am&lified by the red$ction in income ta0es and social sec$rity contrib$tions &aid by ho$seholds, &lanned as &art of the 2001 ta0 reform. 'n contrast, total investment sho$ld ease slightly in both 2001 and 2002, essentially beca$se constr$ction o$t&$t is not e0&ected to re&eat high gro"th rate registered this year. .0&orts sho$ld also grad$ally feel the effects of the moderate slo"do"n in international trade forecast for 2000 and 2001 and of the relative deterioration of the D$tch economyAs com&etitiveness in recent years. .m&loyment and $nem&loyment. #he strong gro"th in the D$tch economy since 199% is reflected in a significant rise in em&loyment 1abo$t 3% a year in recent years2. #his trend contin$ed in 1999, "ith total em&loyment $& by 2. % 12.9% in f$ll5time e*$ivalent2.

!ctivity in 200" 7ollo"ing a b$oyant economic &erformance in 2003, GDP gro"th contin$ed to be strong in the first *$arter of 200<, &osting 0. % *$arter5on5*$arter, b$t fell in the second *$arter to merely 0.3%. #his can in &art be e0&lained by a slo"do"n in the constr$ction sector 1d$e to $nfavorable "eather conditions2 and in the &rod$ction of the chemical and steel ind$stries. Another factor de&ressing gro"th "as the high average tem&erat$re in the first half of 200<, "hich led to a shar& red$ction in the &rod$ction of gas. ?oo(ing beyond these tem&orary factors, the $nderlying economic gro"th im&et$s is forecast to remain solid. .conomic activity is e0&ected to regain moment$m in the second half of the year and ann$al GDP gro"th sho$ld come o$t at aro$nd 2.<% in 200<. Private cons$m&tion e0&endit$re is e0&ected to gro" by 1.9% in 200<, s$&&orted by contin$ed b$oyant labo$r mar(et develo&ments. #he strong fall in cons$mer confidence in ,e&tember is not li(ely to have significant adverse effects on &rivate cons$m&tion gro"th, as cons$mers do not e0&ect their &ersonal financial sit$ation to "orsen significantly and on average contin$e to consider the c$rrent )$nct$re to be a good time to ma(e ma)or &$rchases. #he contrib$tion of the foreign balance to GDP gro"th is e0&ected to be aro$nd 0.3 &&. in 200<, "hile domestic so$rces contrib$te almost 2./ &&s. 'f the gro"th contrib$tion of demand com&onents is corrected for their res&ective im&ort contents, the main net112 contrib$tion to GDP gro"th in 200< t$rns o$t to come from e0&orts of goods and services, at 1.3&&s. #he net contrib$tion of domestic so$rces is 1.1%. 'n fact, "ith e0&ort mar(ets for D$tch &rod$cts gro"ing by aro$nd 3@% in 200<, the economy "ill be able to retain its mar(et share, as the increase in $nit labo$r costs sho$ld remain benign and in line "ith the develo&ments of $nit labo$r costs in the main com&etitor co$ntries. #rospects for 200$ and 200% .conomic gro"th &ros&ects remain favo$rable. Beal GDP gro"th is forecast to slo" only marginally, to 2.3% in 200 and 2./% in 2009. Cverall, both domestic and e0ternal demand are e0&ected to recede some"hat over the co$rse of the forecast hori9on. Beal &rivate cons$m&tion gro"th sho$ld again t$rn o$t at aro$nd 2% in 200 , des&ite increases in ta0es and social &remi$ms that act as a bra(e on &$rchasing &o"er gro"th. +ons$m&tion is s$&&orted by contin$ed strong em&loyment gro"th, b$t a small &art of the increase in cons$m&tion is e0&ected to be financed by a red$ction in the savings rate, similar to 200<. Beal &rivate cons$m&tion gro"th is forecast to fall to 1.3% in 2009, as accelerating cons$mer &rices red$ce &$rchasing &o"er. #he mat$ring economic cycle "ill red$ce the need for e0&ansionary &rivate gross fi0ed ca&ital formation and ann$al &rivate investment gro"th sho$ld therefore moderate to aro$nd %% in both 200 and 2009, do"n from almost /% in 200<. #he com&etitive &osition of the D$tch economy is e0&ected to "orsen in both 200 and 2009, a res$lt of both the ass$med slo"do"n in "orld trade gro"th and the relative increase in $nit labo$r costs. As a res$lt, e0&ort gro"th "ill fall to aro$nd /./% &er year. #he contrib$tion of e0&orts to GDP gro"th, corrected for its im&ort content, "ill conse*$ently fall, b$t e0&orts remain the main engine of gro"th in both years. 4ith e0&orts gro"ing slightly faster than im&orts, the c$rrent acco$nt s$r&l$s is e0&ected to "iden to aro$nd % of GDP in 2009. &a'our mar(ets) costs and prices #he average n$mber of ho$rs "or(ed &er &erson is relatively lo" in the :etherlands 1aro$nd 1%00 &er year in 20032, "hich can be mostly attrib$ted to the high share of &art5time "or(ers. 't has contin$ed to decline over the &ast co$&le of years, b$t this &rocess is e0&ected to be halted beca$se of strong demand for labo$r, "hich benefits from the favo$rable economic conditions. 'n f$ll5time e*$ivalence terms, em&loyment gro"th sho$ld come o$t in 200< at aro$nd 1. %, similar to 2003. 7or 200 and 2009, em&loyment gro"th is forecast to remain rob$st, b$t to slightly ease to 1.3% in 2009 in the "a(e of the increasing tightness and mismatches on the labo$r mar(et.

#he rise in labo$r demand is &artly being met by a f$rther red$ction in the n$mber of $nem&loyed. #he $nem&loyment rate, already at 3.9% in 2003 and 3.1% in ,e&tember 200<, is foreseen to fall to aro$nd 2./% over the forecast hori9on. !o"ever, as the total &o&$lation of "or(ing age is e0&ected to be stagnant over the forecast &eriod as a res$lt of demogra&hic develo&ments, most of the e0tra labo$r demand is being met thro$gh an increase in the activity rate, by men and "omen "ho "ere &revio$sly o$tside the labo$r force and have been enco$raged to "or( by the a&&arent tightness of the labo$r mar(et. #hese "or(ers enter the labo$r mar(et not only as em&loyees, b$t also in increasing n$mbers as selfem&loyed. 'n fact, the n$mber of self5em&loyed is set to increase by aro$nd %, or 100000 &eo&le, over the three5year forecast hori9on. #u'lic finances #he government balance is e0&ected to deteriorate s$bstantially, from a s$r&l$s of 0.3% of GDP in 2003 to a deficit of 0.%% in 200<. #his is still aro$nd D% of GDP better than e0&ected in the s&ring 200< forecast, "hich is mainly the res$lt of some"hat higher social contrib$tions and a better o$tcome of the deficit of lo"er levels of government. #hese effects are &artly offset by lo"er5than5e0&ected gas reven$es, "hich follo" from a lo"er &rod$ction of gas in the first half of 200<. 8ased on a no5&olicy5change ass$m&tion, in 2009 the general government balance is forecast to im&rove by 0. % of GDP, to a s$r&l$s of 1.3%. C$t of this im&rovement, half a &ercent of GDP is the res$lt of the red$ction in the ann$al contrib$tion of the :etherlands to the .E b$dget by slightly less than 0.2% &er year according to the +o$ncil decision on the .E o"n reso$rces 1c$m$lated for 200< to 20092. 'n line "ith the draft b$dget for 200 , it is ass$med in this forecast that all national &arliaments "ill have ratified the .E b$dget by 2009, so that in that year reimb$rsements for the years 200< and 200 "ill be made together "ith the reg$lar contrib$tion for 2009. #he str$ct$ral b$dget balance is forecast to deteriorate mar(edly in 200<, from a s$r&l$s of aro$nd 1% of GDP in 2003 to a slight deficit of 0.2% of GDP. 'n 200 , it is foreseen to recover &artially, to a s$r&l$s of @% and im&rove only slightly f$rther in 2009. #he $nderlying ass$m&tion is that there "ill be the &ositive one5off reven$e in 2009 of almost 0.%% of GDP lin(ed to the restit$tion of the e0&ected red$ction in the .E contrib$tion in 200< and 200 . #he government debt ratio is forecast to fall from %<.9% in 2003 to %1.<% of GDP in 2009. #he fall in the debt ratio can be mainly attrib$ted to the gro"th of nominal GDP. *nding a period of strong growth !ctivity in 200$: still positive 'ut wea(ening underlying growth impetus 7ollo"ing a b$oyant economic &erformance in 200<, GDP gro"th slo"ed in the first half of 200 , "ith the first t"o *$arters &osting 0.%% and 0.1% res&ectively. 'n the first *$arter gro"th "as mainly driven by investment, the b$l( of "hich "as oneoff investments in air&lanes and energy &ro)ects. ?oo(ing beyond the incidental factors, $nderlying economic gro"th im&et$s has "ea(ened considerably. .conomic activity is e0&ected to be s$bd$ed in the second half of the year. D$e to the e0ce&tional moment$m generated in 200< ho"ever, ann$al GDP gro"th sho$ld still reach 2.3% in 200 . Private cons$m&tion e0&endit$re is e0&ected to e0&and by 2.0% in 200 . 't is being driven by higher nat$ral gas cons$m&tion, a reform in the health care system shifting &$blic to &rivate cons$m&tion and a high carry5over from 200<. Cn the other hand, cons$m&tion is being "ea(ened by increases in ta0es and social &remi$ms, "hich act as a bra(e on &$rchasing &o"er gro"th. 7$rthermore, the shar& dro& in cons$mer confidence is e0&ected to start having a negative im&act on cons$m&tion as cons$mers e0&ect their &ersonal financial sit$ation to "orsen in vie" of the financial crisis. Cn balance, *$arterly gro"th in 200 remains "ell belo" the long term average.

Des&ite an e0&ected mar(ed slo"do"n in the second half of 200 , &rivate investment gro"th is e0&ected to reach <.1% this year. #his is mainly d$e to the one5off investments, "hich contrib$ted to an $n$s$ally strong first *$arter. #hese also largely e0&lain the e0&ected negative contrib$tion of 0./ && of the foreign balance to GDP gro"th in 200 , as a large &art of investment demand is directed to"ards trans&ortation e*$i&ment, most of "hich is being im&orted. .0&orts are slo"ing in 200 to %.0% and "ill stay broadly in line "ith the international im&ort demand, thereby retaining their mar(et share. +alling consumer confidence and tightening credit conditions result in a slowdown in 200% and 20,0 .conomic gro"th is e0&ected to slo" do"n f$rther in 2009, as the im&act of the ongoing financial crisis on the D$tch economy and the e$ro area is li(ely to be m$ch stronger than &revio$sly e0&ected. Cn average, GDP gro"th in 2009 is &ro)ected to fall to a mere 0.%%. 4ith the slo"do"n already starting in the second *$arter of 200 , the carry5over for 2009 is e0&ected to be relatively lo" at 0.1% of GDP, do"n from 1.<% at the end of 200<. 7or 2010, the ann$al gro"th rate is e0&ected to come o$t at 0.9%, d$e to a modest recovery of domestic demand, "hich is li(ely to &rofit from lo"er inflation and some"hat less tight credit conditions.