March 7, 2016

Steady recovery of the Dutch economy

The Dutch economy is recovering slowly but surely from the Great Recession and the euro crisis, with 1.8% growth this year and 2.0% next year. Inflation this year will be low (0.3%), due to lower oil and resource prices, and is projected to increase next year to 1.0%.

The stable economic growth is coupled with a limited decrease in unemployment, down to 6.5% this year and 6.3% in 2017. The government deficit is projected to drop to 1.7% of GDP this year and 1.2% next year. 

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This moderate economic recovery is also continuing on a global level, with a 2.9% growth in the world economy projected for this year and 3.2% for the next. For the eurozone, this will be 1.6% and 1.7%, respectively. The world trade relevant for the Netherlands will gradually increase to 4.4% in 2017. 

Uncertainty around the projections mainly concerns the international situation, and the risks are predominately downwards. The continuing volatility on financial markets in response to that uncertainty has a negative impact on the investment climate, due to the uncertain level of return. A Brexit would have a future negative impact on both the European and the Dutch economy, as would a discontinuation of the Schengen Agreement in response to the ongoing influx of asylum seekers. 

The Dutch economy is developing steadily. The decrease in natural gas production will dampen this year’s growth by 0.2%. Basic growth levels  in both years are comparable. Both in 2016 and 2017, all spending categories are contributing to economic growth. Consumption is growing because of an increase in real disposable incomes, a higher employment level, and the delayed impact of the 5-billion-euro package of measures to reduce the financial burden. The growth in production, in both years, is coupled with an increase in employment which, in turn, is driven by the growth in the market sector. Labour supply is also increasing, but less so than employment. On balance, there will be a slight decrease in unemployment, to 6.3% in 2017.

The government deficit is projected to decrease to 1.7% of GDP in 2016 and to 1.2% in 2017. The continuing economic recovery and decrease in unemployment result in a lower expenditure on unemployment benefits. Lower natural gas revenues, caused by lower production and a lower price level, will have an attenuating effect on deficit reduction. For 2017, this reduction is projected to be in line with the reduction level shown in the analysis of the Government Agreement of the Rutte–Asher Cabinet. The structural government deficit will improve in 2017 by 0.4% of GDP. The budgetary task, based on the European budgetary rules, is projected to come to the required improvement of 0,6% of GDP in 2017.  Corrected collective spending is projected to exceed maximum growth, on the basis of the European budgetary rules.

An analysis in the CPB Policy Brief 2016/03 on projections for 2016 (Raming CEP 2016 (in Dutch),  in which these figures are presented, discusses the arrangements that redistribute income over the life course. One of its conclusions is that current policies on pensions and privately owned homes hinder the distribution of consumption over the life course. This also causes vulnerability for the Netherlands as a whole. On the one hand, there are large amounts in pension capital exposed to financial market risks, while, on the other, people have large debts in the form of mortgages. Changing these arrangements is complex; it requires making fundamental choices about both pension and tax systems, and in addition is bound by the possibilities and impossibilities of how these systems can be executed. Options include limiting the required mortgage repayment to a maximum of 50%, and enabling a reduction in pension savings, possibly in combination with the required level of mortgage repayment.

The final version of the Central Economic Plan 2016 will be published on 21 March. The figures presented today are those of that publication.

Contacts

Edwin van de Haar Read more
Dick Morks Read more