No more ‘Nexit’ but what’s next for the Dutch economy?

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Geert Wilders’ “Nexit” proposals have come to nought.

The firebrand Dutch anti-Islam populist has failed to make major inroads in the country’s elections, gaining just five seats and keeping his PVV party below the parliamentary heights hit back in 2010.

Although Mr Wilders, who campaigned on a one-page manifesto to ban the Quran and halt all immigration, becomes head of the second largest party he will be shut out of any coalition talks after his rivals have vowed not to work with him.

The PVV’s disappointing showing will also put paid to talk of the Netherlands leaving the eurozone. In fact, the prospect of a coalition between the ruling centre-right VVD and gains for liberal party D66 and the green left mean any new government is likely to have a distinctly pro-European feel.

Dutch economic policy, which has concentrated on strengthening the country’s public finances through moderate austerity since 2012, could well become more stimulative under a new VVD-led administration, say analysts.

“The healthy budgetary position means there will be no need for difficult discussions regarding budget cuts”, said Pepijn Bergsen at The Economist Intelligence, who expects labour market reforms to become a key priority for the new government.

“There is a broad consensus that the [labour reforms] enacted by the previous government have been counterproductive. But the healthy state of the economy means that there are no policy areas that are in pressing need of reform”, adds Mr Bergsen.

Even a mild loosening of the purse strings should support Dutch growth at a time when the global economy and the eurozone are enjoying a healthy cyclical upswing.

A disparate coalition could also coalesce on areas such as tax reform. Ahead of the election, the VVD vowed to lower corporate tax rates while the likes of D66 and the Greens have also come out in favour of tax caps for companies.

Estimates from the European Commission show the Dutch economy will grow by 2 per cent this year, slightly lower from 2.1 per cent in 2016 before moderating to 1.8 per cent in 2018.

Bruna Skarica, economist at Oxford Economics, estimates up to a 0.3 percentage point lift to GDP growth should the VVD partner up with the Greens and deliver “milder-than-planned cuts in social security and healthcare”.

Still, Ms Skarica warns the fragmented political landscape – where 17 parties will enter parliament – “make efficient governing very difficult”.

Analysts at Fitch do not expect “a marked shift in broad economic and fiscal policy” over the next four years but warn a rightward lurch from prime minister Mark Rutte “may have some indirect impact on policy in its core areas, most notably on immigration”.

Calculations show Mr Rutte is likely to lead the first four-party coalition since the 1970s, and it is jobs reforms that could prove to be one of the biggest sticking points in looming coalition talks, warns Raymond Van der Putten, economist at BNP Paribas.

“The VVD, CDA and D66 would like to see further easing of employment protection legislation, which is among the strictest in the OECD”, he notes.

“In contrast, PvdA, GL and SP would like to see higher unemployment insurance contributions by employers for fixed contract workers”.

Although any final government will be far less eurosceptic than the virulent anti-EU sentiment espoused by Mr Wilders, analysts at Capital Economics note that overall, parties hostile to the EU hold more seats in parliament compared to 2012.

This composition means that along with the likes of the Germans and the Finns, the Dutch will continue to hold the fort among the eurozone’s most hawkish member states, championing prudence over spending and reforms over credit-led growth.

“While soft and hard eurosceptic parties held 51 seats before, they now hold 63″, say Capital Economics. “That suggests that there is now less chance of the Netherlands agreeing to further EU integration or fiscal bailouts for indebted member states”.

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