Extra austerity measures aimed to keep the Dutch budget deficit within the EU norm of three percent could mean the Dutch economy growth would remain flat or even contract in 2014, Rabobank economists said in a quarterly report on Wednesday.
"A continued focus on Brussels' three percent of GDP deficit ceiling will again prevent the Dutch economy from growing in 2014," the Dutch bank report stated, "It would be better if the cabinet accelerated structural reforms instead of carrying out additional spending cuts."
"Maintaining the focus on public sector retrenchment will also worsen the negative spiral of low economic growth, falling purchasing power and extra austerity measures... As a result, the economic malaise is certain to continue into 2014," it added.
The Rabobank economists are expecting a one percent contraction of GDP this year, and stagnation for 2014. "This is mainly due to very weak domestic spending. The additional austerity measures designed to lower the budget deficit are stifling Dutch growth," the report said.
On Monday, the Dutch national bank, De Nederlandsche Bank (DNB), already announced that the government needs to cut an extra 6 to 8 billion euros (8 to 10.6 U.S. dollars) in 2014 to meet the EU standard.
The European Commission allowed the Netherlands to exceed the three-percent-norm in 2013, but expected cuts of at least 6 billion euros in 2014 to reach a budget deficit of 2.8 percent.
"Those additional cuts will throw sand in the wheels of the recovery," Rabobank said. "Since Rabobank's economists are somewhat more negative about the outlook for 2014 than the EC (European Commission), they are assuming that the targeted budget deficit of 2.8 percent of GDP will still not be achieved," the report said.