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Central Economic Plan 2017 published, budget surplus; inflation dampens purchasing power

Published: 24 March 2017

The Dutch economy is showing a robust level of growth. CPB Netherlands Bureau for Economic Policy Analysis calculated a growth of 2.1% for this year and 1.8% for 2018. Both years are expected to show a budget surplus and unemployment will continue to decrease. At the same time, increasing inflation will have a dampening impact on purchasing power. The economic prospects are also favourable for the medium term (20182021). Over this period, the economy will grow an average 1.7%, per year, and government finances are in order. This is concluded in the Central Economic Plan (CEP) 2017, published today.

The Dutch economy will be receiving impulses in several areas, in 2017 and 2018. Exports will continue to do well, and companies will increase their investments. In addition, households (consumption), housing investments and government spending will also contribute to growth. Unemployment will drop this year to 4.9%, and in 2018 to 4.7%. Higher energy tariffs and natural resource prices will cause inflation in the entire eurozone to go up. For the Netherlands, this means an increase in inflation of 1.6% this year and 1.4% in 2018. The increasing inflation and ending of the 2016 policy package to ease the financial burden will lead to lower increases in median purchasing power in both this year and the next, compared to the 2014-2016 period. 

Government finances

For this year, the government budget surplus is projected at 0.5% of GDP, increasing to 0.8% in 2018.  This improvement is mainly due to substantially increasing tax revenues and decreasing expenditure on unemployment benefits. Declining natural gas revenues (lower production and lower prices) have the opposite effect. In 2017, for the first time since 2010, the government debt — at 58.5% of GDP — will be below the European debt ceiling of 60% of GDP, decreasing further in 2018 to 55.5%.

Global economy

Economic recovery is expected to continue, on a global level, particularly because of relatively high economic growth in emerging economies in Asia. Growth in the United States is robust, and projections for the short term are favourable. Economic growth in the eurozone is projected at 1.7%, for both this year and the next. Unemployment will decline in many EU countries, although it will still be above the long-term average. In the coming years, economic prospects, both on the global and the European level, will be surrounded by risks and uncertainty. This, among other things, is due to national elections in various EU Member States, implementation of the Brexit, and uncertainties about the policy of the new US Federal Government with respect to trade and regulation of the financial sector.  

Medium term

Over the 2018-2021 period, the Dutch economy is projected to grow by an average 1.7% per year, which is shown in the actualisation of the medium-term outlook as included in the CEP. Employment and labour supply are increasing, in tandem, resulting in a stable 4.7% unemployment over this period. Interest rates and inflation will go up slightly, but remain low. The government budget by 2021 will have a surplus of 1.3% of GDP. Economic growth combined with a budget surplus will lead to a decrease in government debt, down to 46,6% by 2021. The sustainability balance, which indicates whether the current level of public services will be tenable in the long term, shows a surplus of 0.5% of GDP. As a result, the budget balance for 2021 and sustainability will improve by a respective 0.4 and 0.1 percentage points, compared against the most recent projections (MEV, September 2016), which also served as a basis for the calculations of this year’s election manifestos.

Structurally lower growth

For the coming decades, the growth potential of the Dutch economy will be lower than in the years preceding the financial and economic crises, as is concluded in the CEP. ‘Growth figures of 3%, 4% or even 5% are a thing of the past. Lower growth is the future, not only for the Netherlands, but also for many other western countries. This is the result, among other things, of population ageing and declining productivity growth. Stimulating potential growth is an option, but it can be intractable,’ according to CPB Director Laura van Geest. 

In drafting the Central Economic Plan 2017, CPB as always assumed unchanged government policy. The upcoming formation of a new Cabinet — and the subsequent new Government Agreement — will undoubtedly have an impact on economic prospects

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