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Brexit slowing down economic growth in the Netherlands

Published: 9 August 2016

The Dutch economy is projected to grow by 1.7% this year. Next year, this will be 1.6%, whereas last June, CPB Netherlands Bureau for Economic Policy Analysis predicted a 2.1% growth for 2017. The underlying recovery of the economy is progressing, but the uncertainty following the UK Brexit referendum, in the short term, will have negative effects on consumption and investments, as well as a negative impact on the world trade that is relevant for the Netherlands. The effect of this uncertainty is temporary. In addition to the impact of the Brexit referendum (-0.4 percentage points in 2017), the further reduction in Dutch natural gas production will also temper next year’s growth by 0.2 percentage point of GDP.

Unemployment is projected to stabilise next year (at 6.2%) and the government deficit will decrease (to 0.6% of GDP). Inflation in the Netherlands will remain very low, with 0% this year and 0.5% in 2017. Development in median household purchasing power will drop from 2.7% this year to 0.7% in 2017.  These results are published today in CPB’s interim projections which, so soon after the UK vote to leave the EU, are more uncertain than usual. 
  
International growth
Global economic growth will be limited, among other things due to the low growth in emerging economies. World trade is also projected to grow at a slow pace. The eurozone’s economic growth will be affected negatively by the Brexit vote, with expected growth levels of 1.6% this year and 1.5% for 2017. In combination with the decline in trade with the United Kingdom, this will lead to lower relevant world trade, causing next year’s growth in Dutch exports to slightly slow down.

Domestic consumption
This year, consumption growth is limited. Next year, consumption will benefit from the increase of real wages and positive developments on the housing market, while the Brexit vote will have a negative effect.  

Unemployment
The improving economy means that employment will grow, this year. Companies are expected to become a little more careful with hiring staff in the second half of this year, because of Brexit-related uncertainties. This causes next year’s growth in employment to taper off and unemployment to remain stable.

Government deficit
The government deficit will decrease from 1.2% this year to 0.6% next year. Tax revenues have been increasing rapidly, particularly those related to corporate income tax. The increase in government spending will remain moderate. The reduction in deficit in 2017 is in line with that mentioned in the Government Agreement of the Rutte-Asscher Cabinet. Figures include revenues from the announced phase-out of privately managed pension schemes (Pensioen in Eigen Beheer) for directors who are also large shareholders, and the revenues designated to additional government spending. The budget, as yet, is not in keeping with European fiscal rules on the structural balance and on government expenditures. 

Purchasing power
The reduced purchasing-power development projected for 2017 is mainly due to the disappearance of the positive effects of the 5 billion euros in burden reduction and a slightly increasing inflation under a steady increase in contract wages in the market sector. For the employed, purchasing power is projected to increase by 1.1% next year, and for benefit recipients and pensioners to decrease by 0.1% and 0.7%, respectively.   

Appendix: Questions and Answers for this projection.

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