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, any coalition between the ruling centre-right VVD and gains for liberal parties such as D66 and the green left party mean any new government is likely to have a distinctly pro-European feel.

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 administration, say analysts.

“The 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”.

“The impact on the economic outlook of a multi­party coalition is likely to be limited, as the healthy state of the economy means that there are no policy areas that are in pressing need of reform”, adds Mr Bergsen.

An loosening of the purse strings should help support growth at a time when the global economy and the eurozone is enjoying a healthy cyclical upswing.

Ahead of the vote, the VVD vowed to lower corporate tax rates, with the likes of D66 and the Greens 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 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 that the fragmented political landscape – where 17 parties will enter parliament – “will 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.

But jobs reforms could prove to be a major sticking point in looming coalition talks, warns Raymond Van der Putten 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, eurosceptic parties hold more seats in parliament compared to 2012.

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

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