Dutch Economy Springs Leak, Faces Stagnation - WSJ

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EUROPE NEWS J uly 23, 2013, 7:12 p.m. ET

Associated Press

Shopkeepers at Amsterdam's Albert Cuypmarket, shown, in March, are grappling withdwindling sales.

By MAARTEN VAN TARTWIJ Kand LRA HILMARSDTTIR

AMSTERDAMThe Albert Cuyp market here, famous for its offerings of cheap clothing and exotic

foods, is one of the busiest in the Netherlands.

But while it still attracts plenty of shoppers, customers

are increasingly wary of spending their money there,

said Nicolas Steur, a 50-year-old fishmonger. Revenue

at his stall, where he sells fresh haddock, raw herring

and other seafood, has fallen by 20% compared with

four years ago.

"We still have about the same amount of customers,"

Mr. Steur said. "But they spend less money. People are

cutting down on their expenses."

The comments contrast sharply with the image of the

Netherlands, one of the wealthiest European Union

countries. Thanks to its top credit rating, competitive

economy and relatively low public-debt levels, the nation is seen as one of the "core" euro-zone

countries.

Yet, beneath the surface, there is a different story. The

Netherlands is in its third recession since 2009 and

faces a prolonged period of economic stagnation,

according to the Dutch central bank.

As a result, the governmentone of the main allies in

Germany's call for austerityis wrestling to satisfy the

EU's budget rules and faces growing pressure to loosen

its fiscal policy.

Mr. Steur isn't the only businessman struggling with weak demand. A record number of

companies went bankrupt in the first half of 2013 as revenue slumped.

"It's very difficult at the moment," said Chris Dierman, a 57-year-old vendor who sells

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The Netherlands Is in Its Third Recession Since 2009

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Mediterranean delicacies such as olives and sun-dried tomatoes. "Cutting costs is the most

important thing now. But there comes a point when you've reached your limit."

Data released late last week highlight the problem. Unemployment rose to 6.8% in June, statistics

bureau CBS said, using a definition of the International Labour Organization.

Consumer sentiment, which has been depressed for years, deteriorated again in July, it said.

CBS said on Friday that household spending fell 1.8% on an annual basis in May and has declinedfor two years. Car sales in particular were down, but sales of clothing, home furnishings and

domestic appliances and household products were also sharply lower.

The Netherlands' economic woes are largely homegrown. Since house prices started falling in

2008, households have cut spending to pay down mortgages.

Meanwhile, their finances were further stretched by austerity-driven tax increases, rising

unemployment and pension cuts.

Economists see no quick way out. The Netherlands suffers from a so-called balance-sheet

recessionone characterized by high debt levels that prompt households to save rather thanspendand they are usually longer and more severe than the average cyclical downturn.

While households are cutting spending to reduce debt, banks and the government are also cutting

back to fix their finances. As a result, domestic demand is plummeting.

"We have run into the paradox of thrift," said Bas Jacobs, a professor of economics at Erasmus

University Rotterdam. "Not all sectors of the economy can start saving without triggering a

collapse in aggregate demand."

The cloudy outlook has led to warnings that the Netherlands is drifting away from the euro-zone

core and might even be stripped of its cherished triple-A rating.

"A long balance-sheet recession with various rounds of austerity measures, increasing austerity

fatigue, typically leads to fiscal slippageand fiscal slippage is a typical reason for downgrades,"

analysts at Nordea said Thursday in a report about the Netherlands.

The issue has stirred a heated domestic debate over the government's austerity drive.

Critics, ranging from labor unions to business lobbying groups, are calling on the government to

relax its budget-cutting efforts and allow households and companies more breathing room.

But Prime Minister Mark Rutte, a vocal advocate of fiscal discipline, is eager to satisfy EU

requirements in 2014.

His coalition government this month reached broad agreement on a package of 6 billion ($7.9

billion) in spending cuts and tax increases that will be completed after the summer recess.

The prospect of more budget cuts is giving shopkeepers headaches.

"I'm very worried," said Ria van der Vlist, who owns a vitamin and food-supplement store in

Rotterdam. "We need an injection to get the economy going because it is only getting worse. The

government needs to take a different approach."


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Back at Amsterdam's Albert Cuyp market, Mr. Steur, the fishmonger, is trying to attract more

foreign tourists to offset sluggish local demand. Still, his overall sentiment remains similarly

gloomy.

"Customers now only buy 100 grams of fish instead of 200 grams," he said. "I think we'll have to

struggle for the next four to five years."

Write to Maarten van Tartwijk at [email protected]

A version of this article appeared July 24, 2013, on page A10 in the U.S. edition of The Wall

Street Journal, with the headline: Dutch Economy Faces Stagnation.


24-Jul-13

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Dutch Economy Springs Leak, Faces Stagnation - WSJ