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Continuing growth, low inflation

Published: 3 June 2016

Economic growth is continuing, for an important part as a result of domestic spending. The economy is projected to grow by 1.8% this year and by 2.1% in 2017. Consumption levels will increase by 1.5% this year and 2.1% next year, due to an increase in household disposable income under continued low inflation. For both years, investments are projected to grow by more than GDP. Public spending will lag behind economic growth. These are some of the conclusions in the June Projections 2016 by CPB Netherlands Bureau for Economic Policy Analysis.

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Global economic growth will remain limited, largely due to a slowdown in the growth of the emerging economies. From the perspective of years of recession and low growth levels, the picture is relatively positive for Europe. Global trade will see a slow growth rate that barely exceeds that of the global economy. The global trade relevant to the Netherlands is expected to grow more strongly, because of the relatively high levels of trade between Europe and the United States. For 2016, this relevant global trade is projected to increase by 3.9%, and for 2017 by 4.8%. This will also profit Dutch exports.

There are a number of specific risks that may slow down economic growth: the possible exit of the United Kingdom from the European Union, the weak financial situation in southern Europe, a slowdown in global trade, and the uncertainty about monetary policy in the United States and the eurozone.

Inflation will be low, with 0.1% this year and 0.9% next year, as a result of moderate wage cost developments, a limited increase in retail prices, and a decrease in import prices in 2016. For 2017, higher oil and resource prices are expected to lead to a slight recovery of inflation. Wage levels are not expected to see any extreme developments, due to the larger labour market. Unemployment will drop slowly, from 6.9% in 2015 to 6.2% in 2017.

Public finances will benefit from the economic growth. The EMU balance will improve, from -1.8% of GDP last year to -1.6% this year and -1.0% next year, in part, also due to lower interest payments. Public finances are not yet in line with the criteria of the Stability and Growth Pact. Median static purchasing power for this year is projected to increase by 2.6%, and for 2017 by 0.2%. Purchasing power is expected to grow over 2016, as the increase in contract wages will be higher than inflation and because of the reduction in financial burden due to the 5-billion-euro package of measures. 

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