CPB REPORT: ECONOMIC GROWTH REMAINS HIGH, ALSO IN 2001
In the projection of CPB Netherlands Bureau for Economic Policy Analysis (CPB), the growth rate of exports of goods excluding energy will double from just over 5% in 1999 to 10% next year.
For the year 2001 GDP growth is forecasted to decelerate to 4% as a consequence of less dynamic exports and private residential investment compared to this year. On the other hand, private non-residential investment and consumption growth remain strong in 2001. The tight labour market forces companies to make the production more capital-intensive and this will lead to extra investment.
For 2000 and 2001 CPB expects employment in terms of labour years to expand by 2.5% and 2.25% respectively. The growth in terms of jobs will come out slightly lower in both years, because part-time workers will probably work longer hours. The increase in employment will translate into a further fall in unemployment from 4% of the labour force in 1999 to 3% in 2001. Overall, the labour market will tighten further.
Consumption and inflation
The forecasted growth of private consumption of 4.25% in 2000 is considerably higher than might be expected based on the development of the real household disposable income. This forecast is completely in line with the development in the past four years, when household consumption expenditure increased by 3.7% on average. This was on average 1.4% higher than the growth of the disposable income.
This can be explained by the substantial capital gains on stocks and houses which Dutch households have enjoyed. The wealth effect is expected to wane this year and next year. Yet, together with the anticipation effect of the VAT increase on 1 January 2001, it is strong enough to project an increase in consumption by 4.25% in 2000. For the year 2001 CPB expects a continuation of the consumption growth rate of 4.25%, thanks to the major tax reform in 2001 (increase in VAT; considerable cut in personal income tax rates; on balance a fall in the tax burden on households). Because of the tax reform, the growth of net household income is forecasted to accelerate from 2.75% this year to 4.5% next year. This means that net household income growth will once again be higher than consumption growth, after four years the other way round.
The rate of inflation is expected to rise to 2.5% this year, mainly as a consequence of the surge in import prices since early last year. Next year CPI is expected to increase by 3.5%, primarily because of the increase in indirect taxes under the tax reform, which raises inflation temporarily.
The condition of the world economy is improving. CPB forecast for the growth in world output for both 2000 and 2001 is almost 4.5%. The world trade surge is expected to result in an average increase in 2000 of 11.5% and 10% in 2001.
GDP growth in Japan is picking up this year after being negative in 1999. The recovery in other Asian countries supports this positive development in Japan.
In reaction to the tightening of monetary policy and the waning of wealth effects related to stock market conditions, GDP growth in the US is expected to slow down from almost 5% in 2000 to 3.25% in 2001.
Economic growth in the euro zone is now expected to accelerate to 3.75% this year and almost 3.5% next year. Activity has greatly benefited from the export boost caused by the strong world demand and the high dollar exchange rate. So far, the euro zone had not yet experienced the same boom in ICT-related investments that has played such an important role in the United States over the past couple of years. Unemployment in the euro zone is declining by 0.75% of the labour force each year, and this trend is expected to continue for some time.
What else in CPB Report 2000/2?
This summarises the current view of CPB Netherlands Bureau for Economic Policy Analysis on the economic outlook for 2000 and 2001, as stated in CPB Report 2000/2. In addition to these forecasts, CPB Report (CPB's quarterly magazine, written in English) highlights completed and current research at the Bureau. This issue contains among other subjects articles on the market for scientific journals; the importance of ICT for growth; fiscal treatment of individual retirement provisions; Kyoto and the timing of abatement activities; and the valuation of risk in public projects.
Scientific journals: solutions for the journal crisis
The ever-rising prices for journals and limited library budgets cause a reduced access to scientific knowledge. CPB Report argues that the current set-up of the market causes this journal crisis. Publishers who obtain copyrights on high-quality papers are able to charge monopoly prices, since papers are not interchangeable. New information and communication technologies present an opportunity for reform of this market set-up. One possible way to tackle the journal crisis is to make copyrights ineffective, and to let authors pay the publishers with money instead of copyrights. A competitive system of scientific publishing and free access to scientific papers would result.
ICT important for Dutch economic growth
Information and communication technology (ICT) has become increasingly important for economic development in the Netherlands since 1995. The ICT sector currently accounts for nearly a quarter of economic growth. The modest acceleration in labour productivity growth at macro level during the second half of the 1990s is also due to the ICT sector. Yet, thus far the Netherlands has not been able to follow the productivity spurt evident in the United States. Especially since outside the ICT sector productivity growth is still limping, despite ICT applications in the production process and the possible positive spill-over effects of ICT.