CPB Report: Exports will pick up
Nevertheless, export growth will pick up in the second half of 1999. Next year exports are expected to expand faster than in 1999, but that will be offset by a clear slowing down in consumption growth. In 2000, GDP growth will slow to 2% on balance.
Inflation will probably come out at 2% this year. This is significantly higher than was estimated three months ago. The main reasons for this are the stronger dollar and the higher oil price. Next year inflation is expected to dip to 1.5%.
World economy
The world economy is looking up again since the end of last year, thanks to the upturn in Asia. The recovery is expected to gain momentum and spread to other non-industrial regions in the course of this year. Growth in the industrial world as a whole is expected to decelerate slightly this year and next. The United States is projected to experience a more or less soft landing. The Japanese economy is likely to show renewed weakness after budgetary impulses fade away. Only in Western Europe activity will pick up, but hardly sufficient for a further reduction in unemployment. World trade volume is already rebounding from the sharp fall of last winter. It will follow a modest 5% growth path in the next eighteen months. International prices may pick up from the present low levels, in reaction to stronger world demand. This will cause somewhat more inflation to the industrial world.
This summarizes the current view of CPB Netherlands Bureau for Economic Policy Analysis on the economic outlook for 1999 and 2000, as stated in CPB Report 1999/2. 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 articles on Dutch land policy, housing construction, the accuracy of CPB forecasts, modelling the pharmaceutical market, productivity in business services, and export performance.
The land market
The actual policy on land restrictions for housing leads to unwanted side-effects of land conversion. Under a free market for land, external effects would cause too much land to be allocated to housing, potentially leading to 'urban sprawl'. Regulation leads to an artificial scarcity of building land vis--vis agricultural land. This artificial scarcity manifests itself in price differences. The scarcity rent is a windfall gain for the sellers - farmers, developers or local communities. CPB suggests imposing a levy on housing land in order to redirect the scarcity rent to those who suffer from the transformation of agricultural land to building land: the 'consumers of open space'. This levy could also prevent distortions that emerge because of the misallocation of the rent.
Housing construction
Recent CPB research reveals that current regulation on spatial planning may result in market distortions and inefficiencies in the Dutch housing construction industry. Building programmes do not match with consumers' preferences for better quality and more spacious houses. Heavy regulation by (local) governments not only creates a burden for firms, but may also create entry barriers for new firms. The existence of considerable rents gives rise to inefficiencies in the building process. By removing excessive regulation specific to housing construction, and allowing more competitive forces, the government may promote more efficient construction and a better match to consumer preferences.
The accuracy of CPB forecasts
How accurate have the CPB's short-term projections been over the last few decades? The main source of forecasting errors is a wrong assessment of international developments. CPB projections of GDP growth in the Netherlands correlate closely with those prepared by international organisations such as the EU and OECD. Underestimations tend to occur in years when economic growth comes out on the high side, and overestimations tend to occur when economic growth is very low. A comparison of forecasting errors on national GDP growth by research institutes in eight European countries shows that the quality of CPB forecasts occupies a middle position in the group of institutes considered.
Modelling the Dutch pharmaceutical market
What can the government do to reduce pharmaceutical costs? This question can be studied with the recently developed economic model for the Dutch pharmaceutical market, as part of CPB's project to model the entire Dutch health care sector.
Encouraging cost-conscious dispensation behaviour may be highly effective in reducing costs. It not only stimulates pharmacists to substitute less expensive alternatives for brand names. Also, it induces the pharmaceutical industry to adopt more competitive pricing policies.