May 1, 2000

An economic perspective 2001-2002: some simulations

CPB: in 2002 uitgavenmeevaller kleiner en inkomstenmeevaller groter

Press release

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As projections become more uncertain when the time horizon gets longer, this perspective takes the form of two simulations, one with a somewhat lower growth rate, the other with a somewhat higher growth rate. Both simulations correspond with the major uncertainties pointed out for the year 2001 in the Central Economic Plan. These uncertainties relate to the international economic developments and to those in the United States in particular. On the one hand, US growth may remain high if productivity rises curb inflationary pressures and wealth effects from the boom in share prices remain substantial. On the other hand, the imbalances in the US economy could equally well result in a much bleaker international picture, accompanied by reduced readiness of foreign investors to finance US overspending, a lower dollar and falling stock prices.

In the low growth simulation the Dutch export markets grow by 6½% on average over the period 2001-2002. In that case Dutch GDP growth will decrease to 2½% per year. In the high growth simulation world trade growth remains at a high level of 10% per year on average and the Dutch economy continues to grow strongly with a GDP growth rate of 3¾% per year in 2001-2002. In both simulations, private consumption growth is expected to remain high because of the substantial rise in disposable income due to the tax reform 2001. Unemployment shows a further decline in both simulations, partly as a consequence of the high GDP growth rates in earlier years.

The simulations assume that the government uses any additional windfalls in public expenditure and income to improve its EMU balance. Under that assumption the windfall in public expenditure amounts to ƒ 1 bln in 2002 in the low growth simulation and to ƒ 2 bln in the high growth simulation. These outcomes are the net result of, on the one hand, less unemployment and lower interest payments than originally anticipated and, on the other hand, higher real wages and benefit levels. The windfalls in public revenues amount to more than ƒ 20 bln in the low growth simulation and more than ƒ 30 bln in the high growth simulation. These substantial windfalls largely reflect that the coalition agreement of 1998 was intentionally based on a cautious scenario for economic growth in 1999-2002.

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