A European economy that has overcome political turmoil like France has returned to growth

A European economy that has overcome political turmoil like France has returned to growth

With all eyes on France, it’s easy to forget that the Netherlands has also experienced political upheaval over the past 12 months. Last November, the disturbances culminated in the historic victory of Geert Wilders’ far-right and Eurosceptic Party for Freedom (PVV), which is now being analyzed as a precedent for what could happen in France in the upcoming legislative elections on Sunday, June 30. In its first round (the second will be on July 7) and Marine Le Penz won the National Regroupment (RN). However, in contrast to the bleak economic picture painted for the French country, in the Dutch case there is little policy instability for markets and the country’s economic growth is expected to be above the Eurozone average over the next few years. coming quarters.

The Netherlands has had an exceptionally strong recovery from Covid due to extensive financial support and a strong healthcare system, which made it possible to reopen almost immediately. But since then, the economy has contracted in four of the last five quarters. While the biggest drags on gross domestic product (GDP) are exports and investment, labor shortages and weak demand are reducing output and investment, capital economists explained in last week’s report on the Dutch economy. Additionally, studies show that last winter’s bad weather was a big drag on construction.

He Demonic political scene Threatened future opportunities created last year. The far-right won its first surprise victory in a national election that some analysts considered the country’s biggest political shock since World War II. But Wilders’ party was far from the required majority of 76 seats (they won 37 seats) while the distribution of seats made a kind of ‘garden sanitarium’ of traditional parties impossible.

After Months of negotiationA new government was formed in May, a PVV-led four-party coalition that has had to table its ambitions to reach an agreement with its partners, although it has promised to fulfill some of its star promises to curb immigration. including traditional prior rejection of social norms.

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All this did not prevent the economic prospects of the country from improving. “It’s expected Growth accelerates again in 2024driven by higher private consumption and external demand,” the International Monetary Fund’s (IMF) Executive Board said in its April analysis of the Dutch economy. “Growth is expected to pick up gradually in 2024 and 2025, driven by households’ purchasing power. Thanks to low inflation and strong external demand,” agency officials added.

“While it’s tempting to draw parallels between the government of the Netherlands and the future government of France, there are two fundamental differences,” explains Lily Millard, assistant economist at Capital Economics. The first is precisely accumulation Concessions Wilders must make To reach government agreement. One that contradicts France’s predictions Government led by RN To live with Jordan Bartella, student of Marine Le Pen, prime minister and Emmanuel Macron. If Le Pen’s men had an absolute majority in the National Assembly, the president would be unable to make decisions as succinctly as he would like. Here it will be The edge and maneuverability that Bardella possesses is key Within the government, a small minority will complicate the implementation of a roadmap this week.

The second major difference with France, explains the capital economy strategist The PVV campaigned for an austere fiscal policywhen RN prefers to use a more relaxed fiscal policy What do the current government’s fiscal plans mean? Although Le Pen’s people have abandoned their tough rhetoric on economic matters (they have already given up on France’s exit from the euro, known as FREXIT) and, as noted earlier, this week they have tried to remain unmoved. Far from the budgetary stability demanded by Brussels, there are many doubts. “A plan to cut taxes by 7 billion euros by reducing France’s contribution to the EU budget appears to be still being implemented. Our Eurozone macroeconomic team sees tensions lingering,” analysts attest from ING Research Services in a note. For customers this week.

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Almost paradoxically, The Netherlands is relaxing its tax policy, most other eurozone countries are tightening it. This year, the primary structural balance will increase by 0.5% of GDP in the Netherlands, but will decrease by 1% of GDP in the euro zone as a whole.

The coalition agreement between the PVV and its partners states that the fiscal policy will not differ significantly from that established in the draft. The budget for 2024 was presented by the previous government. Policies to reduce child poverty are consistent between the two governments and account for much of this year’s spending expansion. Although the European Commission (EC) last week announced its intention to subject several countries, including France, to excessive deficit procedures, with a deficit of 5.5% of GDP in 2023, the Netherlands may have escaped criticism for its small deficit. 1.6% of GDP this year.

“Budget 2024 Moderate expansion. This mainly reflects higher spending on social transfers, defense and public investment. Social support measures are generally well-targeted, but not the extension of reduced excise duties; So, the phasing out this year is welcome. “Efforts to reduce implicit fuel subsidies are also underway and welcome,” IMF officials pointed out in their report.

On this basis, the Dutch economy has a way to go. According to Capital Economics projections, base effects (compared with data from 12 months earlier) mean that year-on-year growth in 2024 will not be as strong in the Netherlands as in the euro zone. But on a quarterly basis, they insist, the Netherlands has a chance This is above the Eurozone average throughout the year. The latest IMF observatory this spring forecast GDP growth of 0.6% in 2024 and 1.3% in 2025.

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As a start, Consumption opportunities are encouraging. The European Commission’s survey of consumer confidence in the Netherlands continues to rise this year. The employment expectations component of the survey is consistent with employment growth of about 1.5% year-over-year, close to the pre-pandemic average. In addition, wage growth has been higher compared to the pre-pandemic average, and real wages have picked up after significant declines, Millard adds. All this should support disposable income and household consumption.

It is also possible Investment increases this year. Department of Construction -who struggled in the last 18 months- Seems to have left the worst. The EC construction survey points to a return to growth as the impact of bad weather at the start of the year fades. Additionally, building permits are on the rise, suggesting that residential investment will pick up again in the coming months. Pointing to the stabilization of housing investment, the government declared that investment in housing is a priority, as mortgage demand is no longer much reduced, although it remains to be seen what it will do to encourage housing construction. families.

Finally, the Export opportunities They are good too. The headline manufacturing PMI rose steadily, and is consistent with the sector expanding for the second time since August 2022 in May. And the new export orders component of the Netherlands’ manufacturing PMI is consistent with export growth of around 1% for the quarter.


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