EMU: DUTCH DEFICIT WIDENS DESPITE BELT TIGHTENING MEASURES.

The programme notes that the open economy of the Netherlands was adversely affected by the sharp slowdown in the world economy. Real GDP growth reached 1.3% in 2001 but slowed to no more than 0.2% in 2002. The general government accounts deteriorated markedly in 2002 to a deficit of 1.2% of GDP, compared to a slight surplus of 0.1% of GDP in 2001. This deterioration was due to a combination of high expenditure growth in some areas and a weakening of revenues, the latter reflecting the combined lagging impact of the economic slowdown and the tax reform. The debt ratio declined only slightly in 2002 and reached 52.6% of GDP.

The revised 2002 updated stability programme is based on macro-economic assumptions whereby real GDP growth is expected to recover gradually from 0.75% in 2003 to 2.5% in 2007. The programme takes into account the substantial consolidation package introduced by the new government for the period 2003-2007. While for 2003 and 2004 the projections are in line with the Commission Spring forecast, the recommendation warns that "risks are clearly skewed to the downside".

Deficit.

Under these assumptions, the revised 2002 update expects the general government deficit to increase to 1.6% of GDP in 2003 (despite a tight budget), rising slightly to a deficit of 1.7% of GDP in 2004. The general government deficit is subsequently expected to improve to 1.2% of GDP in 2005 and 0.8% of GDP in 2006, a deficit of 0.5% of GDP still remaining in 2007.

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