Dutch deficit seen above EU's 3 percent target next year

AMSTERDAM Wed Dec 19, 2012 10:29am GMT

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AMSTERDAM (Reuters) - The Netherlands will miss its 3.0 percent budget deficit target in 2013 as the economy contracts for the second year running, the cabinet's economic forecaster CPB said on Wednesday.

Its projections follow close on the heels of an even gloomier outlook from the Dutch central bank and add to signs that the government will need to deliver more budget cuts if the country is to retain one of the euro zone's few triple-A credit ratings.

"The main point is the same: the recovery of our economy requires more time. This is obviously worrying, in particular with a view to restoring order to the public finances," Finance Minister Jeroen Dijsselbloem said in a statement on the CPB's new forecasts.

Dijsselbloem said he would not comment on whether further budget cuts would be needed to meet the EU deficit target of 3 percent of gross domestic product, adding that the government would wait until the CPB updates its economic estimates in February or March.

The CPB forecast the deficit at 3.3 percent of gross domestic output in 2013, above the 3 percent ceiling recommended by the European Commission for member countries.

This year, the deficit is seen at 3.8 percent, CPB said, predicting the economy would contract 1.0 percent in 2012 and a further 0.5 percent in 2013.

As recently as September, the CPB had seen economic growth of 0.75 percent next year, and predicted a budget deficit of 2.7 percent of output, comfortably within EU limits.

Missing the deficit target would be a blow for a core euro zone country which prides itself on fiscal discipline and has berated southern European countries for spending too much.

HOUSING SLUMP

Earlier this week, Dijsselbloem said that windfall gains from a telecoms spectrum auction - which raised a higher-than-expected 3.8 billion euros - would not go towards extra spending or to reduce the government's austerity programme.

Leading Dutch commercial bank Rabobank RABN.UL warned last week that poor growth prospects increased the risk of a downgrade of the Netherlands' top-notch credit rating.

That would be a further setback for the euro zone as it tries to solve its debt crisis, which has thrown the euro zone into recession and hit investor sentiment globally.

Prime Minister Mark Rutte, re-elected in September, and his new coalition partner are already pushing through nearly 30 billion euros of austerity measures agreed in the course of this year.

"The most important causes are declining wages, falling employment, lower house prices and a worsening position of pension funds," the CPB said.

Housing prices have fallen more than 15 percent since 2008 and are forecast to drop as much as 25 percent from their pre-crisis peak. Consumer spending is expected to fall 1.5 percent in 2013, the CPB said.

Dutch exports, excluding energy, are expected to increase 3 percent in 2013 after 2.5 percent growth this year, the CPB said, curbed by weak trade prospects in the euro zone.

The central bank last week predicted a 3.5 percent of GDP deficit next year, and a 0.6 percent contraction of the euro zone's fifth-largest economy.

(Additional reporting by Gilbert Kreijger; Editing by Patrick Graham and Susan Fenton)

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