The economy shrank by an unexpectedly sharp 1.4 percent in the first
quarter of 2014 when unseasonably warm weather hit demand for
natural gas, which is a major contributor to Dutch economic output.
The central bank forecast the economy will expand by 0.2 percent in
2014 after two years of contraction, with growth picking up to 1.6
percent in 2015 and 2016 as domestic spending recovers. Six months
ago, the central bank had expected growth of only 0.9 percent next
In its December forecast, prepared before the impact of the fall in
gas production was known, the bank had expected 2014 growth of 0.5
"Consumer and producer confidence are coming back - there are truly
unmistakable signs of recovery," said Job Swank, monetary affairs
and financial stability director at the central bank, although he
cautioned of a "bumpy road" ahead.
Swank warned that political instability in eastern Europe could hit
growth in the Netherlands, in particular if tensions between Russia
and the European Union over Ukraine were to lead to a trade war.
"The Dutch economy is still not running on all cylinders," the
central bank said in its forecasts, citing high unemployment and
industry that is operating below its long-term average output. The
output gap will fall from 4.5 percent this year to 3.5 percent in
It said inflation will remain low, reaching 1 percent in two years'
time. It expects inflation of 0.5 percent in 2014.
The Netherlands was among the core euro zone countries hit hardest
by the bloc's debt crisis. Home prices have tumbled 20 percent since
2008, which has eroded consumer spending, but now appear to have
Unemployment remains high, hovering at 8.7 percent in March and
April, but Swank said that the labor market had almost "bottomed
out" and was likely to begin to recover.
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The surprise contraction in the first quarter, largely caused by low
demand for gas during the mild winter, will dampen growth in 2014,
the bank said.
That dip in gas production is set to continue after gas extraction
led to a series of minor earthquakes in the province of Groningen,
prompting the government to limit production.
The reduction in the volume of gas production, to 63 billion cubic
meters in 2015, down from 80 billion last year, would "weigh on real
GDP and thereby also on the output gap", the central bank said.
The budget deficit will remain comfortably below the European
Union's 3 percent target, falling to 1.8 per cent of economic output
in 2016. Public sector debt will fall from 74.3 percent of GDP this
year to 73.6 percent in two years.
(Reporting by Thomas Escritt; Editing by Anthony Deutsch and
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