News Financial
Limited economic growth due to high inflation and interest rates
The overheated economy is cooling down. Over the first three quarters of this year, gross domestic product (GDP) shrank on a quarterly basis, but for the entire year of 2023 economic growth will be just above zero. According to the Autumn estimate of De Nederlandsche Bank (DNB) published today, GDP will increase by 0,1%.
Last year there was still catch-up growth after the pandemic of 4,4%. The economy will recover in the coming years, although GDP is not expected to rise sharply by 2024% in 0,3. Economic growth of 2025% is expected for 1.
According to DNB, this year's limited economic growth is 'mainly because spending is slowed down by high inflation and sharply increased interest rates'. "In addition, monetary policy has been tightened worldwide and world trade is shrinking, causing Dutch exports to decline."
The economy is expected to recover in 2024 as the government spends more. Households also have a little more to spend because wages increase more than inflation (which is decreasing). Wages are rising rapidly on average, by 5,9% this year and 5,7% in 2024. In addition, purchasing power measures support household consumption.
According to the central bank, economic growth will accelerate further in 2025, largely due to domestic spending. "However, world trade growth remains low, so that export growth is only very limited."
Inflation is falling faster than expected
Inflation is falling faster than expected and, according to the central bank, is heading towards the desired level of 2% in the coming years. Inflation for this year is still 4,1%. The tightness on the labor market is easing slightly. A lot of staff is still being sought, but unemployment will increase slightly from 3,6% of the labor force to 4% in 2024.
Recommendations to politicians
The Dutch Central Bank makes two recommendations to the government. The first is to apply budget discipline, because otherwise it will not be possible to limit the budget deficit to 2% at the end of the next cabinet term. The second policy recommendation is to explicitly consider the benefits of international trade and cooperation in policy choices. An alternative scenario in the estimate shows that when world trade decreases, risk premiums increase and the oil price rises, this is at the expense of economic growth and prosperity in the Netherlands. "In addition, a recent DNB Analysis on geo-economic fragmentation shows that the Dutch economy is more sensitive than the European economy to disruptions in value chains and increasing trade restrictions, and that the European internal market can mitigate these negative effects," according to the Autumn Estimate.
Linda van Eekeres
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