Dutch economy to recover slowly in 2014, 2015 - central bank

AMSTERDAM Mon Dec 9, 2013 7:00am EST

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AMSTERDAM Dec 9 (Reuters) - The Dutch economy will only recover slowly over the next two years and the government will need to further rein in tax benefits to bring the budget deficit below the European Union ceiling by 2015, the central bank said.

The Netherlands was one of the last euro zone states to exit recession earlier this year, due in part to the government's commitment to a tight fiscal policy - which credit agency Standard & Poor's cited last month as a factor in stripping the country of its coveted triple A rating.

Efforts by firms and households to put their finances in order after a long downturn would put a brake on growth over the next two years, the central bank (DNB) said on Monday.

"The economic recovery has taken its time in coming and will be limited in scale... because households, banks, pension funds and the government will be busy repairing their battered balance sheets," it said in its semi-annual outlook.

The DNB's growth predictions were in line with other forecasters, saying the economy would grow by 0.5 percent in 2014 and by 0.9 percent the following year, with strong export growth - reaching 4.5 percent in 2015 - leading the way.

Inflation would fall sharply, from 2.5 percent in 2013 to just 1 percent a year over the coming two years, the bank said.

Government finances will improve as a result of the fiscal pain, the bank said, with the 2013 deficit forecast to hit 3.2 percent of GDP, down from 4.1 percent the year before. The bank said the deficit would rise to 3.4 per cent in 2014 and stay above the EU's 3 percent target at 3.1 percent the following year.

But the 2015 figure could come in at 2.7 percent if the government succeeds in pushing through a cut to a tax benefit designed to support pension savings, the central bank said.

The European Commission projects the Dutch budget deficit at 3.3 percent in 2013 and in 2014 and at 3.0 percent in 2015.

Job Swank, director for monetary affairs and financial stability at the central bank, told journalists the economy had reached a turning point but that the downgrade by S&P had been expected.

"(It) wasn't a surprise but the timing was. If you look at the structural lag to growth and rising government debts, it's something we could have foreseen six months ago."

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