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ING : Netherlands will be on edge of recession near the end of the year

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The Netherlands will be near recession as 2012 closes in. This would be due to weaker exports and sluggish domestic demand, which poses a setback for Dutch public finances according to ING economists.

In a report, ING said the Netherlands will “balance on the edge of recession” in the second half as the global economic outlook is deteriorating. “Export growth is slowing down due to a decrease in world trade, and this is not offset by domestic demand,” it said.

ING expects Dutch gross domestic product to contract by 0.3% in the third quarter and foresees flat GDP growth for the remainder of the year. As a result, unemployment will rise to 5.5% in 2012, from a projected 5.2% in 2011, it said.

The report comes days before the Dutch government will present its budget for 2012. The administration is widely expected to cut its economic forecasts, which are set to be published Friday.

The Netherlands, the euro zone’s fifth-largest economy, is one of the six triple-A-rated countries in the currency bloc.

ING economist Charles Kalshoven said the gloomier outlook will pose a “setback” for the Dutch Treasury. However, he noted the negative impact will be limited, pointing at the strong fundamentals of the Dutch economy compared with debt-troubled countries in southern Europe.

“The competitiveness of the Dutch economy is good, and that is the most important factor to keep public finances healthy for the longer term,” he said in a phone interview.

The Dutch government aims to cut spending by EUR18 billion by 2015 to rein in its fiscal shortfall, which was 5.4% of GDP in 2010. Prime Minister Mark Rutte has promised no extra budget cuts for 2012. However, he has warned that additional fiscal measures may be necessary after 2012 if the economy weakens further.

For the whole year, ING forecasts the economy to grow by 1.6% in 2011, helped by a strong performance in the first half of this year. For 2012, it expects GDP to increase by 1.2%.

Amsterdam, September 12, 2011 (Dow Jones)