Rabobank: economic growth comes to a standstill

Continued inflation means that the Dutch economy will begin to contract at the end of this year and early 2023. Economic growth for the whole of 2022 will amount to 4,7%, but it will decline to 0,2% in 2023. This is mainly due to the historic decline in purchasing power, Rabobank economists expect. Entrepreneurs have to make sharp choices, the bank points out: pass on the higher costs, borrow on margins or scale down.

The Dutch economy is approaching a tipping point, Rabobank reports in a quarterly report. After strong economic growth this year, the effects of inflation are slowly becoming visible in the economy. The sky-high inflation has consequences for almost all components of the gross domestic product and the labor market, Rabobank economist Frank van Es explains in an explanation. “As the economic damage of inflation gradually permeates the economy, we do not expect a major short-term negative shock. Rather, we think growth will come to a virtual standstill over a longer period of time. For this year, we forecast inflation of 11,4%, which will expected to fall to 4,9% by 2023."

Rabobank expects government measures to support economic growth somewhat in the coming period, thus easing the decline in purchasing power somewhat. According to the bank, the stalling of economic growth in the Netherlands has consequences for the labor market. "The rise in unemployment that has already started will continue, bringing it to an average of 2023% of the labor force in 4,1. This is still low in historical terms. The labor market therefore remains very tight: the number of vacancies is still high. higher than the number of unemployed," said Van Es. 

Estimates with great uncertainty
Rabobank emphasizes that the estimates are surrounded by great uncertainty. "We have not seen prolonged high inflation for a long time and its macroeconomic impact is difficult to estimate. It is clear that many households have to adjust their spending patterns or even run into financial problems, but it is uncertain to what extent that ultimately puts pressure on economic growth," explains Van Es. "The fact that we have seen little in the economic statistics so far is on the one hand encouraging, but it can also mean that the blow is simply yet to come."

Economic headwinds require helmsmanship
During this period, a lot is being asked of entrepreneurs in the various economic sectors in the Netherlands, considering, among other things, the sharply increased costs for energy and raw materials and the staff shortages. "They have to make sharp choices between passing on costs to customers, be satisfied with lower profit margins or temporarily or permanently reduce or discontinue their production. And it is precisely now that accelerated investment in the energy transition is essential," explains André Vermeulen, deputy director of Sector Management HID/ Care from Rabobank.

The scope for companies to pass on costs partly depends on their competitive position, according to Rabobank. "This is difficult in the construction and catering industry, for example. It is already less of a problem in trade and industry. But we also see sectors that are temporarily scaling down, such as greenhouse horticulture, fisheries and producers of fertilizer and aluminum," says Vermeulen. .

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